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Intrinsic Equity Valuation: An Emprical Assessment of Model Accuracy
Södertörn University, School of Social Sciences.
Södertörn University, School of Social Sciences.
2016 (English)Independent thesis Basic level (degree of Bachelor), 10 credits / 15 HE creditsStudent thesis
Abstract [en]

The discounted cash flow model and relative valuation models are ever-increasingly prevalent in today’s investment-heavy environment. In other words, theoretically inferior models are used in practice. It is this paradox that has lead us to compare the discounted cash flow model (DCFM), discounted dividend model (DDM), residual income-based model (RIVM) and the abnormal earnings growth model (AEGM) and their relative accuracy to observed stockprices. Adding to previous research, we investigate their performance in relation to the OMX30 index. What is more, we test how the performance of each model is affected by an extension of the forecast horizon. The study finds that AEGM outperforms the other models, both before and after extending the horizon. Our analysis was conducted by looking at accuracy, spread and the inherent speculative nature of each model. Taking all this into account, RIVM outperforms the other models. In this sense, one can question the rationale behind investor’s decision to primarily use the discounted cash flow model in equity valuation. 

Place, publisher, year, edition, pages
2016. , 30 p.
Keyword [en]
Equity valuation, Dividend discount model (DDM), residual income valuation (RIV) model, Abnormal earnings (AEG) model, Discounted cash flow (DCF) model
National Category
Business Administration
Identifiers
URN: urn:nbn:se:sh:diva-30377OAI: oai:DiVA.org:sh-30377DiVA: diva2:939272
Subject / course
Business Studies
Uppsok
Social and Behavioural Science, Law
Supervisors
Examiners
Available from: 2016-06-20 Created: 2016-06-18 Last updated: 2016-06-28Bibliographically approved

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fulltext(306 kB)284 downloads
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Type fulltextMimetype application/pdf

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CiteExportLink to record
Permanent link

Direct link
Cite
Citation style
  • apa
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
  • rtf