Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

Relative accuracy and predictive ability of direct valuation methods, price to aggregate earnings method and a hybrid approach

Relative accuracy and predictive ability of direct valuation methods, price to aggregate earnings... In this paper, we assess the relative performance of the direct valuation method and industry multiplier models using 41 435 firm‐quarter Value Line observations over an 11 year (1990–2000) period. Results from both pricing‐error and return‐prediction analyses indicate that direct valuation yields lower percentage pricing errors and greater return prediction ability than the forward price to aggregated forecasted earnings multiplier model. However, a simple hybrid combination of these two methods leads to more accurate intrinsic value estimates, compared to either method used in isolation. It would appear that fundamental analysis could benefit from using one approach as a check on the other. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Accounting & Finance Wiley

Relative accuracy and predictive ability of direct valuation methods, price to aggregate earnings method and a hybrid approach

Download PDF
23 pages

Loading next page...
 
/lp/wiley/relative-accuracy-and-predictive-ability-of-direct-valuation-methods-hCQSPCJafN

References (21)

Publisher
Wiley
Copyright
Copyright © 2006 Wiley Subscription Services, Inc., A Wiley Company
ISSN
0810-5391
eISSN
1467-629X
DOI
10.1111/j.1467-629X.2006.00183.x
Publisher site
See Article on Publisher Site

Abstract

In this paper, we assess the relative performance of the direct valuation method and industry multiplier models using 41 435 firm‐quarter Value Line observations over an 11 year (1990–2000) period. Results from both pricing‐error and return‐prediction analyses indicate that direct valuation yields lower percentage pricing errors and greater return prediction ability than the forward price to aggregated forecasted earnings multiplier model. However, a simple hybrid combination of these two methods leads to more accurate intrinsic value estimates, compared to either method used in isolation. It would appear that fundamental analysis could benefit from using one approach as a check on the other.

Journal

Accounting & Finance – Wiley

Published: Dec 1, 2006

There are no references for this article.