Journal articles: 'Dividend discount model (DDM)'

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Lazzati, Natalia, and Amilcar A. Menichini. "A Dynamic Approach to the Dividend Discount Model." Review of Pacific Basin Financial Markets and Policies 18, no. 03 (September 2015): 1550018. http://dx.doi.org/10.1142/s0219091515500186.

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We derive a dynamic model of the firm with endogenous investment and leverage ratio within the framework of the dividend discount model (DDM). Our valuation model incorporates two relevant components, namely, managerial flexibility and long-run growth. We dispense with any utility specification capturing the preferences of shareholders and obtain closed-form solutions for the firm problem. A standard parameterization suggests that the value of the real options and long-run growth opportunities can easily represent more than 8% and 10% of share price, respectively. We also find that these two components of the stock price are both complements and countercyclical. We finally identify industries where valuation models that do not incorporate these features can lead to considerable underpricing of securities.

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Ivanovski, Zoran, Zoran Narasanov, and Nadica Ivanovska. "Performance Evaluation of Stocks’ Valuation Models at MSE." Economic and Regional Studies / Studia Ekonomiczne i Regionalne 11, no. 2 (June 1, 2018): 7–23. http://dx.doi.org/10.2478/ers-2018-0011.

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Abstract Subject and purpose of work: The main task of this paper is to examine the proximity of valuations generated by different valuation models to stock prices in order to investigate their reliability at Macedonian Stock Exchange (MSE) and to present alternative “scenario” methodology for discounted free cash flow to firm valuation. Materials and methods: By using publicly available data from MSE we are calculating stock prices with three stock valuation models: Discounted Free Cash Flow, Dividend Discount and Relative Valuation. Results: The evaluation of performance of three stock valuation models at the MSE identified that model of Price Multiplies (P/E and other profitability ratios) offer reliable stock values determination and lower level of price errors compared with the average stocks market prices. Conclusions: The Discounted Free Cash Flow (DCF) model provides values close to average market prices, while Dividend Discount (DDM) valuation model generally mispriced stocks at MSE. We suggest the use of DCF model combined with relative valuation models for accurate stocks’ values calculation at MSE.

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Setia, Vandara Vavras. "ANALISIS PENILAIAN HARGA SAHAM MENGGUNAKAN METODE DIVIDEND DISCOUNT MODEL (DDM) SEBAGAI DASAR PENGAMBILAN KEPUTUSAN INVESTASI (Studi pada Perusahaan yang termasuk dalam Indeks LQ-45 di Bursa Efek Indonesia Tahun 2013-2015)." Aplikasi Administrasi: Media Analisa Masalah Administrasi 20, no. 1 (March 22, 2018): 26. http://dx.doi.org/10.30649/aamama.v20i1.90.

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LQ-45 is a group share consisting of 45 shares of the elect with the level of market capitalization and liquidity level above the average for the other stocks. So LQ-45 became one of the most volatile due to the high level of liquidity and market activities. The share price berfluktuatif is a risk that must be faced by investors. Assessment of the share price can be done to minimize the risk of one price.This research aims to know and analyze the results from the calculation of the stock valuation using the Dividend Discount Model (DDM) as the basis for decision on investment companies including in the LQ-45 in Indonesia Stock Exchange the year 2013-2015. This research is classified as quantitative descriptive research and sampling used is purposive sampling. A sample of this research as much as 11 companies in accordance with the criteria.Based on the results of research and analysis of the data using the method Dividend Discount Models (DDM) not constant growth shows that the entire company in 2015 including overlavued category among others, ADRO, AKRA, ASII, ( BBCA, BBNI, BBRI, BMRI, CPIN, GGRM, UNTR, UNVR. While, 2013 and 2014 only one company including undervalued categories namely ASII. Investment decision that can be taken when have stocks including overvalued category, should be sold and when the shares including undervalued categories should be purchased or suspended when has. Keywords : Stock Valuation, Dividend Discount Models (DDM), Investment Decision.

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Ali Tareq, Mohammad. "‘Is Residual Income Model (RIM) REALLY Superior to Dividend Discount Model (DDM)?’ – A Misconception." IOSR Journal of Business and Management 5, no. 6 (2012): 36–44. http://dx.doi.org/10.9790/487x-0563644.

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STUKOV, V. V., and P. S. SHCHERBACHENKO. "ESTIMATION OF THE FAIR VALUE OF SBERBANK PJSC USING THE DIVIDEND DISCOUNT MODEL (DDM)." EKONOMIKA I UPRAVLENIE: PROBLEMY, RESHENIYA 4, no. 5 (2021): 66–77. http://dx.doi.org/10.36871/ek.up.p.r.2021.05.04.008.

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This article evaluates the fair value of SBERBANK's share capital using a two-stage dividend discounting model, analyzes the sensitivity of the model to the initial data, and evaluates the effectiveness of the proposed dividend policy.

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Ismunarti, Nurbani Aulia, Bambang Sunarko, and Tohir Tohir. "ANALISIS PENILAIAN HARGA WAJAR SAHAM MENGGUNAKAN PENDEKATAN DIVIDEND DISCOUNT MODEL, PRICE EARNING RATIO DAN PRICE TO BOOK VALUE." Performance 23, no. 2 (August 10, 2017): 47. http://dx.doi.org/10.20884/1.performance.2016.23.2.277.

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The purpose of this research is to determine the intrinsic value of coal mining company stock listed in LQ45 Index during 2010-2014 period used Dividend Discount Model (DDM) Pertumbuhan Berganda, Price Earning Ratio (PER) and Price to Book Value (PBV) approach. Intrinsic value will compared with market stock value, henceforth be one of basic for taking investment decision in capial market. Difference of intrinsic stock value with market stock value is tasted by Paired Sample T-Test. For this research, the sample used is PT. Adaro Energy Tbk (ADRO), PT. Indo Tambangraya Megah Tbk (ITMG) and PT. Bukit Asam Tbk (PTBA).The result of this research showed that the market stock value of the coal mining company listed in LQ45 Index is higher than intrinsic stock value (overvalued) based DDM Pertumbuhan Berganda and PBV approach. While based PER approach, the market stock value of the coal mining company is lower than intrinsic stock value (undervalued). And then, for the result of paired sample t-test showed that based on DDM Pertumbuhan Berganda , PER and PBV approach has a significant difference between intrinsic value with market stock value.

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Rasheed, Abdul, Muhammad Khalid Sohail, Shahab-Ud Din, and Muhammad Ijaz. "How Do Investment Banks Price Initial Public Offerings? An Empirical Analysis of Emerging Market." International Journal of Financial Studies 6, no. 3 (September 5, 2018): 77. http://dx.doi.org/10.3390/ijfs6030077.

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This study investigates that how investment banks select alternative valuation models to price Initial Public Offerings (IPOs) and examine the value-relevance of each valuation model using the data of 88 IPOs listed on the Pakistan Stock Exchange (PSX) during 2000–2016. This study investigates that investment banks used Dividend Discount Model (DDM), Discounted Cash Flow (DCF) and comparable multiples valuation models on the basis of firm-specific characteristics, aggregate stock market returns and volatility before the IPOs. In this study, a binary logit regression model is used to estimate the cross-sectional determinants of the choice of valuation models by investment banks. The results reveal that underwriters are more likely to use DDM to value firms that have dividends payout trail. The investment banks select DCF when valuing the younger firms, that have more assets-in-tangible, firms that have negative sales growth and positive market returns before the IPO; while comparable multiples are used for mature firms and firms that have less assets-in-tangible. Furthermore, this study also used OLS regressions to examine the value-relevance of each valuation model and Wald-test to examine the predictive power of cross-sectional variation in the market values. The findings unveil that P/B ratio has highest but DCF has lowest predictive power to market values. The Wald-test results depict that none of the valuation methods produces an unbiased estimate of market values.

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Aamir, Muhammad, Hafiz Muhammad Nadeem, Khawer Naheed, and Allah Bakhsh Khan. "How Companies Value Stock Prices After Going Public: Evidence from Emerging Pakistan economy." Journal of Accounting and Finance in Emerging Economies 4, no. 1 (June 30, 2018): 29–38. http://dx.doi.org/10.26710/jafee.v4i1.338.

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The purpose of this study is to estimate the accuracy and authenticity of valuation methods used by underwriters to set preliminary offer price. This study uses complete universe of all newly listed companies during 2000 to 2015 on Pakistan Stock Exchange. We analyzed the determinants of the Initial Public Offering (IPOs) by comparing the ex-ante and ex-post characteristics of IPOs firms. Binary logistic model was used for evaluation of variables. Results revealed that underwriters use four different valuation methods to set IPO preliminary offer price namely as dividend discount model (DDM), discounted cash flow method (DCF), peer groups multiple (MULT) and economic valuation method (EVA). This study used Binary Logistic Regression model to estimate the accuracy and authenticity of these valuation methods. Results of this study can help the portfolio managers for constructing their effective portfolio strategies. This study also helps to highly levered firms to get cheaper long term capital by going public. This study is also important for underwriters to counter check their valuation patterns for IPO firms.

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Nogueira Reis, Pedro M., and Marion Gomes Augusto. "Determinants Of Firm Terminal Value: The Perspective Of North American And European Financial Analysts." International Business & Economics Research Journal (IBER) 13, no. 4 (June 30, 2014): 793. http://dx.doi.org/10.19030/iber.v13i4.8687.

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Company valuation models attempt to estimate the value of a company in two stages: (1) comprising of a period of explicit analysis and (2) based on unlimited production period of cash flows obtained through a mathematical approach of perpetuity, which is the terminal value. In general, these models, whether they belong to the Dividend Discount Model (DDM), the Discount Cash Flow (DCF), or RIM (Residual Income Models) group, discount one attribute (dividends, free cash flow, or results) to a given discount rate. This discount rate, obtained in most cases by the CAPM (Capital asset pricing model) or APT (Arbitrage pricing theory) allows including in the analysis the cost of invested capital based on the risk taking of the attributes. However, one cannot ignore that the second stage of valuation that is usually 53-80% of the company value (Berkman et al., 1998) and is loaded with uncertainties. In this context, particular attention is needed to estimate the value of this portion of the company, under penalty of the assessment producing a high level of error. Mindful of this concern, this study sought to collect the perception of European and North American financial analysts on the key features of the company that they believe contribute most to its value. For this feat, we used a survey with closed answers. From the analysis of 123 valid responses using factor analysis, the authors conclude that there is great importance attached (1) to the life expectancy of the company, (2) to liquidity and operating performance, (3) to innovation and ability to allocate resources to R&D, and (4) to management capacity and capital structure, in determining the value of a company or business in long term. These results contribute to our belief that we can formulate a model for valuating companies and businesses where the results to be obtained in the evaluations are as close as possible to those found in the stock market.

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Harasheh, Murad, Andrea Amaduzzi, and Fairouz Darwish. "The relevance of valuation models: insights from Palestine exchange." International Journal of Islamic and Middle Eastern Finance and Management 13, no. 5 (July 15, 2020): 827–45. http://dx.doi.org/10.1108/imefm-08-2019-0367.

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Purpose This paper aims to investigate the relevance of two groups of valuations models as follows: the accounting models based on the residual income (RIM) and the standard market model, on equity price, return and volatility relevance. Design/methodology/approach The models are tested on companies traded on Palestine exchange from 2009 to 2018, using panel regression analysis. Two-price and two-return models derived from RIM to compare with the market model and four volatility models. Findings The standard RIM outperformed other models in equity price modeling. The dividend discount model (DDM) outperformed the rest of the models in terms of return estimation. However, the authors find that the market model can explain equity variance better than RIM and DDM models. Practical implications For investors, market beta does not necessarily capture all relevant factors of value and traditional financial statements are still important in providing relevant information and different models are used for different values perspectives (price, return and volatility). Originality/value Previous studies focus on comparing the price and return relevance of accounting-based models (RIM and cash flow models). Three aspects differentiate this paper and contribute to its originality, namely, the uniqueness of the context, incorporating the market model into the picture along with the accounting-based models and adding Volatility dimensions of relevance.

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11

Farrell, James L. "The Dividend Discount Model: A Primer." Financial Analysts Journal 41, no. 6 (November 1985): 16–25. http://dx.doi.org/10.2469/faj.v41.n6.16.

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12

Taylor, Richard W. "A Three-Phase Quarterly Dividend Discount Model." Financial Analysts Journal 44, no. 5 (September 1988): 79–80. http://dx.doi.org/10.2469/faj.v44.n5.79.

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13

Rozeff, Michael S. "The three–phase dividend discount model and the ROPE model." Journal of Portfolio Management 16, no. 2 (January 31, 1990): 36–42. http://dx.doi.org/10.3905/jpm.1990.409253.

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Barker, William A. "Making the Dividend Discount Model Relevant for Financial Analysts." CFA Digest 28, no. 1 (February 1998): 19–20. http://dx.doi.org/10.2469/dig.v28.n1.208.

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Ferguson, Robert A. "Making the Dividend Discount Model Relevant for Financial Analysts." Journal of Investing 6, no. 2 (May 31, 1997): 53–64. http://dx.doi.org/10.3905/joi.1997.408418.

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Brooks, Robert, and Billy Helms. "An N-Stage, Fractional Period, Quarterly Dividend Discount Model." Financial Review 25, no. 4 (November 1990): 651–57. http://dx.doi.org/10.1111/j.1540-6288.1990.tb01303.x.

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Agosto, Arianna, Alessandra Mainini, and Enrico Moretto. "Stochastic dividend discount model: covariance of random stock prices." Journal of Economics and Finance 43, no. 3 (August 29, 2018): 552–68. http://dx.doi.org/10.1007/s12197-018-9455-9.

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Hong, Kim, and Fakhruddin Nasution. "PENILAIAN HARGA SAHAM PERUSAHAAN PEMBIAYAAN DI BURSA EFEK INDONESIA." Media Riset Akuntansi, Auditing dan Informasi 12, no. 1 (April 8, 2012): 87. http://dx.doi.org/10.25105/mraai.v12i1.589.

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The purpose of multi finance companies’ stock price valuation is to know their intrinsic values by performing fundamental analysis using dividend discount model, free cash flow to the firm model, free cash flow to equity model, and residual income model. Research data uses secondary data in the period of 2006-2010 which consists of Indonesian Stock Price Composite Index (IHSG), and multi finance companies’ stock prices taken from Yahoo Finance; multi finance companies’ financial statements taken from Indonesian Stock Exchange (BEI) reports; multi finance industry data taken from Bapepam-LK. As a result of research, stock of ADMF is fair valued by using the analysis of dividend discount model; undervalued by using the analysis of free cash flow to the firm and free cash flow to equity models; overvalued by using the analysis of residual income model. Stock of BFIN is undervalued by using the analysis of dividend discount, free cash flow to the firm, and free cash flow to equity models; overvalued by using the analysis of residual income model. Stock of MFIN is overvalued by using the analysis of dividend discount and residual income models; undervalued by using the analysis of free cash flow to the firm and free cash flow to equity models. Statistic t-test shows that there are no significant differences to value stock prices using dividend discount, free cash flow to the firm, free cash flow to equity, and residual income models, therefore investment analyst or investor may use one of the chosen stock price valuation model. Keywords: Multi finance companies, Fundamental analysis, Stock price valuation model, Intrinsic value, Required return, Investment risk

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Bask, Mikael. "Pure announcement and time effects in the dividend-discount model." Quarterly Review of Economics and Finance 77 (August 2020): 266–70. http://dx.doi.org/10.1016/j.qref.2019.10.009.

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Norman, Stephen, Jonathan Schlaudraff, Karianne White, and Douglas Wills. "Deriving the Dividend Discount Model in the Intermediate Microeconomics Class." Journal of Economic Education 44, no. 1 (January 2013): 58–63. http://dx.doi.org/10.1080/00220485.2013.740397.

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Garrett, Ian, and Richard Priestley. "Dividend Growth, Cash Flow, and Discount Rate News." Journal of Financial and Quantitative Analysis 47, no. 5 (October 2012): 1003–28. http://dx.doi.org/10.1017/s0022109012000427.

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AbstractUsing a new variable based on a model of dividend smoothing, we find that dividend growth is highly predictable and that cash flow news contributes importantly to return variability. Cash flow betas derived from this predictability are central to explaining the size effect in the cross section of returns. However, they do not explain the value effect; this is explained by noise betas. We also find that the relative importance of cash flow news in explaining recent stock price run-ups and subsequent declines increases when cash flow news is estimated directly.

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Payne, T. "Effective teaching and use of the constant growth dividend discount model." Financial Services Review 8, no. 4 (1999): 283–91. http://dx.doi.org/10.1016/s1057-0810(00)00046-9.

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Bao, Ge, and Guoliang Feng. "Testing the Dividend Discount Model in Housing Markets: the Role of Risk." Journal of Real Estate Finance and Economics 57, no. 4 (August 9, 2017): 677–701. http://dx.doi.org/10.1007/s11146-017-9626-z.

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Žmindák, Milan, Michal Kaco, Pavol Novák, Leszek Radziszewski, and Josef Soukup. "Determination of the laminate strains using discrete damage mechanics." MATEC Web of Conferences 254 (2019): 06005. http://dx.doi.org/10.1051/matecconf/201925406005.

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In this paper discrete damage mechanics (DDM) is used to predict inter-laminar transverse and shear damage initiation and evolution in terms of the fracture toughness of the laminate. The finite element method (FEM) is one of the most widely and most popular numerical methods for analyzing composite structures, therefore ANSYS commercial software is used for analysis of layered plate composite structure reinforced with long unidirectional fibers with Carbon/Epoxy material. Because ANSYS does not have a built-in capability for calculating crack density, we have to use plugin. A methodology for determination of the fracture toughness is based on fitting DDM model and these data are obtained from literature. Also, prediction of modulus vs. applied strain is contrasted with ply discount results and the effect of in situ correction of strength is highlighted. Evaluation of matrix cracking detected in lamina has been solved using return mapping algorithm.

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Žmindák, Milan, Eva Kormaníková, Pavol Novák, Josef Soukup, and Kamila Kotrasová. "Application of discrete damage mechanics for determination of the crack density in composite laminates." MATEC Web of Conferences 310 (2020): 00002. http://dx.doi.org/10.1051/matecconf/202031000002.

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The finite element method (FEM) is one of the most widely and most popular numerical methods for analyzing damage of composite structures, In this paper discrete damage mechanics (DDM) is used to predict inter-laminar transverse and shear damage initiation and evolution in terms of the fracture toughness of the laminate. ANSYS commercial software is used for analysis of layered plate composite structure reinforced with long unidirectional fibers with Carbon/Epoxy material. Because ANSYS does not have a built-in capability for calculating crack density, we have to use plagin. A methodology for determination of the fracture toughness is based on fitting DDM model and these data are obtained from literature. Also, prediction of modulus vs. applied strain is contrasted with ply discount results and the effect of in situ correction of strength is highlighted. Evaluation of matrix cracking detected in lamina has been solved using return mapping algorithm.

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Akdeniz, Levent, Aslıhan Altay Salih, and Süleyman Tuluğ Ok. "Are stock prices too volatile to be justified by the dividend discount model?" Physica A: Statistical Mechanics and its Applications 376 (March 2007): 433–44. http://dx.doi.org/10.1016/j.physa.2006.10.097.

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YAMAZAKI, AKIRA. "EQUILIBRIUM EQUITY PRICE WITH OPTIMAL DIVIDEND POLICY." International Journal of Theoretical and Applied Finance 20, no. 02 (March 2017): 1750012. http://dx.doi.org/10.1142/s0219024917500121.

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This paper proposes an equilibrium model for evaluating equity with optimal dividend policy in a jump-diffusion market. In this model, a representative investor having power utility over an aggregate consumption process evaluates the equity as the expected value of the discounted dividends with his stochastic discount factor, while a firm paying the dividends from its own cash reserves manages to maximize the equity price. This situation is formulated as a singular stochastic control problem of jump-diffusion processes. We solve this problem and give the equilibrium equity price and the optimal dividend policy. Numerical examples show that the aggregate consumption process and the investor’s risk aversion have a significant impact on the equity price and the dividend policy. This model provides a structural explanation of equity risk premiums that is consistent with the standard theory of asset pricing.

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Yu, Wen Guang, and Zhi Liu. "Improvement to the Expected Discounted Penalty Function for a Classical Risk Model with a Threshold Dividend Strategy." Applied Mechanics and Materials 29-32 (August 2010): 1150–55. http://dx.doi.org/10.4028/www.scientific.net/amm.29-32.1150.

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In this paper, we study the expected discounted penalty function for a classical risk model in which a threshold dividend strategy is used for a classical risk model and the discount interest force process is not a constant, but a stochastic process driven by Poisson process and Wiener process. In this model, we derive and solve an integro-differential equation for the expected discounted penalty function.

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Jiang, Xiaoquan, and Bon‐Soo Lee. "An Empirical Test of the Accounting‐Based Residual Income Model and the Traditional Dividend Discount Model." Journal of Business 78, no. 4 (July 2005): 1465–504. http://dx.doi.org/10.1086/430866.

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Hiebert, Paul, and Matthias Sydow. "What drives returns to euro area housing? Evidence from a dynamic dividend–discount model." Journal of Urban Economics 70, no. 2-3 (September 2011): 88–98. http://dx.doi.org/10.1016/j.jue.2011.03.001.

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Draganac, Dragana. "Do dividend shocks affect excess returns? An experimental study." Ekonomski anali 62, no. 214 (2017): 45–86. http://dx.doi.org/10.2298/eka1714045d.

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The dividend announcement of a company is an informational event that can cause underreaction, momentum, overreaction, post-dividend announcement drift, and mean reversion. It is the uncertainty surrounding dividend announcements that leads to such behavioural phenomena. Most authors consider that underreaction occurs after dividend shocks because new information about the dividend is being slowly and gradually built into the stock price. The effect of dividend shocks is often reflected in excess returns, which can last up to one year after the shock. The experiment described in this paper tests whether statistically significant excess returns are realized after a shock dividend announcement. Participants trade with the stocks of two companies, which only differ by dividend-generating stochastic process. The dividend process of Company 2 is a Merton-style jump-diffusion process (consisting of two parts: Brownian motion and Poisson jump), while the dividend process of Company 1 contains only the Brownian motion component. Statistically significant excess returns are expected when trading with Company 2 stocks. An autoregressive model is applied in order to test this hypothesis. The conclusion is that a dividend shock is followed by statistically significant excess returns in 20 of the 22 experiments, which implies that markets are inefficient after sudden and large changes in dividends. Underreaction and discount rate effects are identified.

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Nasseh, Alireza, and Jack Strauss. "Stock prices and the dividend discount model: did their relation break down in the 1990s?" Quarterly Review of Economics and Finance 44, no. 2 (May 2004): 191–207. http://dx.doi.org/10.1016/j.qref.2003.09.001.

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Vergos, Konstantinos, Apostolos G. Christopoulos, and Vasilios Kalogirou. "Macroeconomic Factors and Company Value in the Context of the Ohlson Residual Income Valuation Model." International Journal of Sustainable Economies Management 2, no. 2 (April 2013): 1–11. http://dx.doi.org/10.4018/ijsem.2013040101.

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Over the past decades the Ohlson Residual Income Model for equity valuation has drawn much attention concerning its advantages when compared to traditional models (DDM, FCFM). This paper attempts to empirically investigate the validity of the Ohlson Residual Income model using data from the Greek economy over the period 1969-2001. By using multiple regression analysis and by incorporating macroeconomic factors as explanatory variables, we investigate the link of accounting and macroeconomic factors in the market valuation of major Greek companies listed in the Athens Stock exchange. We find that the performance of the Ohlson Residual Income Model is quite satisfactory and the use of factors such as commodity prices, discount rates, and market level in some cases add to the explanatory power of the examined model. Our findings are important for both economists and fund managers, because they show that a relation between accounting and macroeconomic data is valid in the Greek market and economy, alongside more developed markets.

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Moyo, Vusani, and Fidelis Mache. "Inferring The Cost Of Equity: Does The CAPM Consistently Outperform The Income And Multiples Valuation Models?" Journal of Applied Business Research (JABR) 34, no. 3 (May 7, 2018): 519–32. http://dx.doi.org/10.19030/jabr.v34i3.10174.

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A number of surveys reveal that a large number of analysts, valuation experts, investors, chief financial officers and finance academics employ the capital asset pricing model (CAPM) of Sharpe (1962) and Lintner (1965) to estimate the cost of equity. There are, however, a number of alternative valuation models that can be used to infer the cost of equity. These alternative equity valuation models include the constant growth dividend discount, the earnings and book market multiples, the residual income and the Ohlson and Juettner-Nauroth (2005) abnormal earnings growth (AEG) models. Using four mature retail firms listed on the Johannesburg Stock Exchange, this paper tested for the equivalence of these models to the CAPM in estimating the cost of equity. The study found that the variants of the constant growth dividend discount and the AEG models give similar estimates which are closer to those of the CAPM. The variants of the price-to-earnings market multiples, price-to-book market multiples, and residual income models all yield estimates that are higher than those of the CAPM. Finally, the estimates seem to be affected by the stability of the firm’s earnings and financial position.

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Michaud, Richard O. "A Scenario-Dependent Dividend Discount Model: Bridging the Gap Between Top-Down Investment Information and Bottom-Up Forecasts." Financial Analysts Journal 41, no. 6 (November 1985): 49–59. http://dx.doi.org/10.2469/faj.v41.n6.49.

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Rowland, Zuzana, and Tomas Stanek. "Determining business value according to FCFE." SHS Web of Conferences 91 (2021): 01040. http://dx.doi.org/10.1051/shsconf/20219101040.

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The large number of joint stock companies causes that investors strive for better awareness and information in the stock area. The objective of the contribution is to apply the method of discounted FCFE in the valuation of a specific company and to determine the parameters for the model application in practice. The data for the analysis are obtained from the database of Kofola ČeskoSlovensko a.s. The data are taken from the published annual reports for the years 2018 and 2019. First, a financial plan for a period of stability was created. Subsequently, the discount value of the company was calculated using the FCFE model. Finally, the calculation of the company value in the continuation phase was calculated. To achieve the research goal, the individual FCFE need to be discounted by the value of equity using the CAMP model. In conclusion, it can be assumed that the discount rate will remain stable and the prediction of the growth rate will not change. If there are no fundamental changes in the company e.g. in terms of dividend payment, investment activities, or changes in the working capital, it can be assumed that the value of the company should be stabilized until 2021.

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Suryadi, Edy, and Nur Fitria. "Nilai Wajar Saham Sektor Advertising, Printing, dan Media Di Bursa Efek Indonesia." JURNAL MANAJEMEN MOTIVASI 10, no. 3 (March 7, 2016): 449. http://dx.doi.org/10.29406/jmm.v10i3.47.

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The background of this research there is an indication that the stock price on the market does not showthe actual value of the shares, especially shares subsectors advertising, Printing, and Media. The intrinsicvalue of shares can be searched by using fundamental analysis of the company through the method ofdividend discount models (DDM). This research is a case study in which the withdrawal of a sample usingpurposive sampling. the data used are secondary data obtained from documents Indonesia StockExchange through its website www.idx.co.id. This research resulted in the intrinsic value of the shares ofthe sub sectors of advertising, Printing and Media, which found that the price of the shares of the subsectors of advertising, Printing, and the media in a state of high market prices (overvalued). Informationfor investors on the stock return is calculated through the method of capital asset pricing model (CAPM)and the formation of the portfolio as well as information for investors that the shares owned byPT.Jasuindo Tiga Perkasa has the highest return and can be considered for investment.

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d’Amato, Maurizio. "Cyclical capitalization and lag vacancy." Journal of European Real Estate Research 10, no. 2 (August 7, 2017): 211–38. http://dx.doi.org/10.1108/jerer-10-2015-0038.

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Purpose This paper aims to propose a new valuation method for income producing properties. The model originally called cyclical dividend discount models (d’Amato, 2003) has been recently proposed as a family of income approach methodologies called cyclical capitalization (d’Amato, 2013; d’Amato, 2015; d’Amato, 2017). Design/methodology/approach The proposed methodology tries to integrate real estate market cycle analysis and forecast inside the valuation process allowing the appraiser to deal with real estate market phases analysis and their consequence in the local real estate market. Findings The findings consist in the creation of a methodology proposed for market value and in particular for mortgage lending determination, as the model may have the capability to reach prudent opinion of value in all the real estate market phase. Research limitations/implications Research limitation consists mainly in a limited number of sample of time series of rent and in the forecast of more than a cap rate or yield rate even if it is quite commonly accepted the cyclical nature of the real estate market. Practical implications The implication of the proposed methodology is a modified approach to direct capitalization finding more flexible approaches to appraise income producing properties sensitive to the upturn and downturn of the real estate market. Social implications The model proposed can be considered useful for the valuation process of those property affected by the property market cycle, both in the mortgage lending and market value determination. Originality/value These methodologies try to integrate in the appraisal process the role of property market cycles. Cyclical capitalization modelling includes in the traditional dividend discount model more than one g-factor to plot property market cycle dealing with the future in a different way. It must be stressed the countercyclical nature of the cyclical capitalization that may be helpful in the determination of mortgage lending value. This is a very important characteristic of such models.

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Donaldson, R. Glen, Mark J. Kamstra, and Lisa A. Kramer. "Estimating the Equity Premium." Journal of Financial and Quantitative Analysis 45, no. 4 (June 8, 2010): 813–46. http://dx.doi.org/10.1017/s0022109010000347.

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AbstractExisting empirical research investigating the size of the equity premium has largely consisted of a series of innovations around a common theme: producing a better estimate of the equity premium by using better data or a better estimation technique. The equity premium estimate that emerges from most of this work matches one moment of the data alone: the mean difference between an estimate of the return to holding equity and a risk-free rate. We instead match multiple moments of U.S. market data, exploiting the joint distribution of the dividend yield, return volatility, and realized excess returns, and find that the equity premium lies within 50 basis points of 3.5%, a range much narrower than was achieved in previous studies. Additionally, statistical tests based on the joint distribution of these moments reveal that only those models of the conditional equity premium that embed time variation, breaks, and/or trends are supported by the data. In order to develop the joint distribution of the dividend yield, return volatility, and excess returns, we need a model of price and return fundamentals. We document that even recently developed analytically tractable models that permit autocorrelated dividend growth rates and discount rates impose restrictions that are rejected by the data. We therefore turn to a wider range of models, requiring numerical solution methods and parameter estimation by the simulated method of moments.

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Chaudhary, Mohammad Irfan, and Mohammed Nishat. "Key Fundamental Factors and Long-run Price Changes in an Emerging Market—A Case Study of Karachi Stock Exchange (KSE)." Pakistan Development Review 41, no. 4II (December 1, 2002): 517–33. http://dx.doi.org/10.30541/v41i4iipp.517-533.

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Share prices are the most important indicator readily available to the investors for their decision to invest or not in a particular share. Theories suggest that share price changes are associated with changes in fundamental variables which are relevant for share valuation like payout ratio, dividend yield, capital structure, earnings size of the firm and its growth, [Wilcox (1984); Rappoport (1986); Downs (1991)]. Linter (1956) linked dividend changes to earnings while Shapiro valuation model (1962) showed dividend streams discounted by the difference in discount rate and growth in dividend should be equal to share price. This predicts direct relation between pay out ratio and the price-earning multiple. Conversely it means that there is an inverse relation between pay out ratio and share price changes. Several eventbased studies established direct relation between share price changes and either earnings or dividend changes [Ball and Brown (1968); Baskin (1989)]. Sharpe (1964) and Hamada (1972) suggested direct relation between share price changes and capital structure. Beaver, Kettler and Sholes (1970) showed that firms appear to pay less of their earnings if they have higher earning volatility. This suggests payout ratio as relevant factor for share price changes. Investigations of share price changes appear to yield evidence that changes in fundamental variable(s) should jointly bring about changes in share prices both in developed and emerging markets. However, the actual fundamental factors found to be relevant may vary from market to market. For example, changes in asset growth of firms are significant in the case of Japanese shares while earnings appear to be universally a relevant factor [Ariff, et al. (1994)]. However, it is widely agreed that a set of fundamental variables as suggested by individual theories is no doubt relevant as possible factors affecting share price changes in the short and the long-run [Ariff and Khan (2000)].

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Gao, Zhan, James N. Myers, Linda A. Myers, and Wan-Ting Wu. "Can a Hybrid Method Improve Equity Valuation? An Empirical Evaluation of the Ohlson and Johannesson (2016) Model." Accounting Review 94, no. 6 (March 1, 2019): 227–52. http://dx.doi.org/10.2308/accr-52415.

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ABSTRACT This paper investigates the validity and usefulness of “hybrid” valuation models. We recast the model in Ohlson and Johannesson (2016) as a hybrid of the Dividend Discount Model and an earnings-based price multiple model, and develop a new hybrid model that generalizes the Residual Income Valuation Model. After validating the theoretical properties of these models' unique parameters, we assess the usefulness of the hybrid models in two applications. In application one, we find that intrinsic values from the hybrid models are more accurate than those from common discounted models or price multiple models. These improvements are attributable to the hybrid models' ability to incorporate stock price and more realistic assumptions about growth. In application two, we find that the implied cost of equity from the hybrid models better captures systematic risks and key idiosyncratic risks, and captures expected returns. These results demonstrate the validity and usefulness of hybrid valuation models. JEL Classifications: G12; G14; G17; G31; M41. Data Availability: The data used are publicly available from the sources cited in the text.

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Fullana, Olga, Mariano González, and David Toscano. "The Role of Assumptions in Ohlson Model Performance: Lessons for Improving Equity-Value Modeling." Mathematics 9, no. 5 (March 2, 2021): 513. http://dx.doi.org/10.3390/math9050513.

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In this paper, we test whether the short-run econometric conditions for the basic assumptions of the Ohlson valuation model hold, and then we relate these results with the fulfillment of the short-run econometric conditions for this model to be effective. Better future modeling motivated us to analyze to what extent the assumptions involved in this seminal model are not good enough approximations to solve the firm valuation problem, causing poor model performance. The model is based on the well-known dividend discount model and the residual income valuation model, and it adds a linear information model, which is a time series model by nature. Therefore, we adopt the time series approach. In the presence of non-stationary variables, we focus our research on US-listed firms for which more than forty years of data with the required cointegration properties to use error correction models are available. The results show that the clean surplus relation assumption has no impact on model performance, while the unbiased accounting property assumption has an important effect on it. The results also emphasize the uselessness of forcing valuation models to match the value displacement property of dividends.

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Mangale, Chittaranjan, Shyam Meena, and Preetesh Purohit. "Fuzzy Logic based Stock Value Prediction using Fundamental Analysis." Oriental journal of computer science and technology 10, no. 1 (March 16, 2017): 120–26. http://dx.doi.org/10.13005/ojcst/10.01.16.

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Stock market is very versatile and fluctuates with time. For the same way it becomes difficult to predict movement of the stock, there are various approaches and tools through which the price of the stock is determined by the past patterns. Mostly the approaches are in terms of fundamental approach and technical approach. For the long-term valuation fundamental approach is used. Every stock is having its own value that does not depend on the price of the stock that is known as Intrinsic value. The proposed model works through phases of data collection, feature processing, fuzzy logic mapping and stock value calculation. Fuzzy logic is used to map the quality as well as quantity valuation factors. The IF THEN rules are applied on the linguistic variable. The fuzzy model outcomes the stock value which is used to provide stock worth. The stock value is calculated by Dividend discount model. Accuracy of the system is 0.77. The results offer the backbone for the value and not the price.

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Kurach, Radosław, and Tomasz Słoński. "The PE Ratio and the Predicted Earnings Growth – the Case of Poland." Folia Oeconomica Stetinensia 15, no. 1 (June 1, 2015): 127–38. http://dx.doi.org/10.1515/foli-2015-0022.

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Abstract We examine the components of equity returns on the Polish capital market. To analyse the underlying complexity of returns we took into consideration the model designed by Leibowitz (1999). This model captures three factors: dividend yield, expected growth in earnings and expected change in price-to-earnings (PE) ratio. We applied this model to analyse the average discount/premium not only to particular shares but to market averages as well. Firstly, we examined the variation of PE across the companies (as adapted from Penman (1996)) to analyse the average rate of return and their striking distance of individual stocks from a ‘normal’ level. Then we checked the transitory earnings in the portfolios of high PE, whereby a fall in current earnings relative to sustainable level of earnings leads to a transitory high PE ratio. We expect that the effect of transience in current year earnings can be significant. Lastly, we analysed the individual companies in order to check what percentage of companies give a “correct” signal about future prospects.

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Wu, Yi, and Nicole Lux. "U.K. House Prices: Bubbles or Market Efficiency? Evidence from Regional Analysis." Journal of Risk and Financial Management 11, no. 3 (September 13, 2018): 54. http://dx.doi.org/10.3390/jrfm11030054.

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This paper studies U.K. regional house prices across nine regions from January 2005 to December 2017 to identify regional versus national effects on house prices and potential house price bubbles. It uses a version of the Gordon dividend discount model, modelling house prices as the present value of imputed rents as a measure of fundamentals. It differentiates between long-term and short-term effect using pooled mean group (PMG) and mean group estimation (MG) to determine variations in regional house prices during different periods relating to the most recent financial crisis. The results confirm that the crisis had differentiating effects in the short term, but there is reversion back to long-run fundamentals. Regional trend analysis shows that the house price growth in the regions has been affected differently in the short run and each region has varying long-run fundamentals. Residential property values in London have shown strongest short-run momentum.

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Ferraro, Olga. "A Brief Overview of the IPO Valuation Methods." International Journal of Business and Management 15, no. 12 (November 6, 2020): 41. http://dx.doi.org/10.5539/ijbm.v15n12p41.

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The method adopted for pricing in an Initial Public Offering is a key issue in the studies on business valuation. In particular, various researches sought to verify which valuation methodologies are preferable in the context of an initial public offering. The review of the main literature shows that Discounted Cash Flow, Market Multiples, Dividend Discount Model and, even if just to some degree, Economic Value Added are the most popular methodologies in the valuation practice. The comparison among different valuation methods, proposed in the literature and variously applied in national and international practices, reveals the necessity to pay more attention to valuation mechanisms that drive the pricing of the shares to be listed. The topic is linked to the ever more pertinent debate on the use of different methods in professional practice: financial experts and analysts tend, in fact, to compare results according to different estimates.

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Singh, Jaspal, and Kiranpreet Kaur. "Testing Ben Graham’s Stock Selection Criteria in Indian Stock Market." Management and Labour Studies 39, no. 1 (February 2014): 43–62. http://dx.doi.org/10.1177/0258042x14535156.

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Using the data on stocks listed on Bombay Stock Exchange for the period spanning from 1996 to 2010, the present study intends to examine the profitability of stock selection criteria of Benjamin Graham in Indian capital market. The different risk–reward combinations of the criteria and the minimum number of principles to be followed by a stock have been examined using one sample T-test, Sharpe ratio and capital asset pricing model (CAPM). The results make it evident that all the risk-reward combinations can be used safely by investors in order to extract excess returns except the combination of discount to net current asset value (NCAV) and current ratio and the combination of high dividend yield and low leverage. Such stocks have lesser chances of growth in future and excessively blocked inventory reduces the operating efficiency of the business. Furthermore the stocks meeting any four rules of the criteria can yield excess returns to investors if such stocks are held for the period of 24 months.

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Nasfi Salem, Faten. "Comparative study of Ohlson and cash flow discounting models in the prediction of the stock price." Corporate Ownership and Control 18, no. 2 (2021): 162–68. http://dx.doi.org/10.22495/cocv18i2art13.

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Two models derived from the dividend discount model attracted the attention of researchers: the residual income model (RIM) and the Ohlson model. These models are said to be dualistic since they combine both aspects of the economic and accounting vision. We propose, in our study, to test the performance of the dualistic evaluation model and to show the importance of accounting information. To do this, we will calculate the value of a listed company according to the actuarial valuation model, namely: the available cash flow discounting model (DCF) and the Ohlson model as a dualistic model. Then, we will determine, based on the expectation and the variance of the signed prediction error (SPE), the model that comes closest to the market price in the case of a Tunisian listed company. The results found in the Tunisian context show the superiority of the Ohlson model in the prediction of stock market prices. This model underlies the traditional belief that the company value is compounded of two main parts: the net value of the investment made in it (book value) and the present value of the period benefits (earnings) that together bring the “clean surplus” concept of the shareholders’ equity value. Specifically, Ohlson (1995) motivates the adoption of the historical price model in value relevance studies, which expresses value as a function of earnings and book values

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D’AMATO, Maurizio. "INCOME APPROACH AND PROPERTY MARKET CYCLE." International Journal of Strategic Property Management 19, no. 3 (October 9, 2015): 207–19. http://dx.doi.org/10.3846/1648715x.2015.1048762.

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This paper is focused on a proposed valuation method including real estate market cycle analysis in real estate valuation process. Starting from early works on this field (d'Amato 2003) the work highlight the dangerous gap between academic research on property market cycles and professional practice of property valuation. The danger of this gap comes from the fact that in spite it is well documented that the property market has a “natural” cyclical behaviour, the opinions of value based on income approaches still relies on assumption of a stable or perpetually growing (or decreasing) income. This may be one generating factors of the real estate bubble and the subsequent financial markets crisis experienced recently. This paper offers a general introduction on cyclical capitalization as a further family of valuation methodologies based on income approach. This method includes in the traditional Dividend Discount Model more than one g-factor in order to plot property market cycle. An empirical application of Cyclical Capitalization is offered to the office market of the Eastern London.

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Kantšukov, Mark, and Priit Sander. "A LESSON IN VALUATION FROM ESTONIA: THE DIFFERENCE BETWEEN THE FUNDAMENTAL VALUE OF EQUITY UNDER DISTRIBUTED AND TRADITIONAL PROFIT TAXATION SYSTEMS." Business: Theory and Practice 19 (July 3, 2018): 146–56. http://dx.doi.org/10.3846/btp.2018.15.

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Corporate value creation and management are one of the key issues for any business enterprise. A gap exists in research into the implications of the distributed profit taxation (DPT) system in Estonia for corporate value creation. Under the Estonian system of corporate taxation, companies need not pay income tax on undistributed earnings, allowing them to postpone income tax liability indeterminately. This theoretical paper compares the relationship between a company’s equity value and taxation of profits under traditional (or classical) (TPT) and DPT systems. A TPT system is a system where the amount of corporate income tax is determined by the profit the company earned during the taxation period. We show that fundamental equity value under a DPT system should be higher vis-à-vis equity value under a TPT system (ceteris paribus). To illustrate this, we use a dividend discount model and values from a hypothetical company. The equity value under DPT is also higher when financial leverage is considered. The results suggest that conventional valuation models and their inputs should be adjusted when valuing Estonian companies. Ignoring these adjustments runs the risk of undervaluing the equity of Estonian companies, as well as the equity of companies operating under similar tax regimes.

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Journal articles on the topic 'Dividend discount model (DDM)'

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