Title: Valuation models and their efficacy in predicting stock prices

Authors: Reza Rahgozar

Addresses: Department of Accounting and Finance, College of Business and Economics, University of Wisconsin–River Falls, USA

Abstract: Using several valuation models, this study estimates stocks prices of all companies included in the Dow Jones Industrial, Transportation, and Utility Indexes over several time periods. The estimated values are then compared with actual stock prices to test the accuracy of the models used in the valuation process. The test results show that the estimated stock prices using discounted cash flow, market-value-added, and multiplier methods differ greatly from their actual prices, indicating that valuation have limited application value. The weak performance of valuation models may lead investors and students to become cynical about the valuation theory and discount or discard the fundamental idea behind the intrinsic value calculation.

Keywords: valuations; security analysis; intrinsic value; stock prices; valuation models.

DOI: 10.1504/AJFA.2008.019949

American Journal of Finance and Accounting, 2008 Vol.1 No.2, pp.139 - 151

Published online: 17 Aug 2008 *

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