A comparison of forecast accuracy among stock pricing models: evidence from Malaysian listed companies

Aik, Nai-Chiek

QR Code Link :
Type :	Article
Subject :	HG Finance
ISSN :	2232-0032/eISSN 0128-0481
Main Author :	Aik, Nai-Chiek
Additional Authors :	Tee, Peck-Ling
Title :	A comparison of forecast accuracy among stock pricing models: evidence from Malaysian listed companies
Hits :	6

Place of Production :	Tanjong Malim
Publisher :	Fakulti Pengurusan dan Ekonomi
Year of Publication :	2012
Notes :	Vol. 2 (2012): Journal of Contemporary Issues and Thought (JCIT)
Corporate Name :	Perpustakaan Tuanku Bainun
PDF Full Text :	You have no permission to view this item.

Abstract : Perpustakaan Tuanku Bainun

Discovering the best model that is able to predict equity values that most closely approximate the actual equity values observed in the market place has always been an area of concern for financial analysts and other stakeholders. This paper tackles this issue by comparing various stock valuation models in terms of their relative forecast accuracy in the Malaysia context. The findings reveal that PE (Price-to-Earnings) model produced the lowest mean absolute forecast error for the overall sample companies as well as in the perspective of large firm size. The results indicate that PE model generally outperforms DGM (Dividend Growth) model and OCF (Operating Cash Flow) model and hence conclude that PE model is the most robust model among stock pricing models. As such, all stakeholders should focus more on information conveyed by earnings in order to enhance their forecast of stock prices. Keywords Forecast accuracy, Stock pricing models.

References

Bhattacharya, S. (1979). Imperfect information, dividend policy, and the ‘bird in the hand’

fallacy. Bell Journal of Economics, 10, 259-270.

Borde, S. F., Byrd, A. K., & Atkinson, S. M. (1999). Stock price reaction to dividend increases

in the hotel and restaurant sector. Journal of Hospitality & Tourism Research, 23(1), 40-

52.

Clement, M. B. (1999). Analyst forecast accuracy: Do ability, resources, and portfolio complexity

matter? Journal of Accounting and Economics, 27(3), 285-303.

Courteau, L., Kao, J., & Richardson, G. D. (2001). The equivalence of dividend, cash flows

and residual earnings approaches to equity valuation employing ideal terminal value

expressions. Contemporary Accounting Research, 18(4), 625-661.

Fama, E. (1970). Efficient capital markets: A review of theory and empirical work. Journal of

Finance, 25, 383-417.

Fama, E. F., & French, K. R. (1988). Dividend yields and expected stock returns. Journal of

Financial Economics, 22, 3-25.

Francis, J., Olsson, P., & Oswald, D. R. (2000). Comparing the accuracy and explainability

of dividend, free cash flow, and abnormal earnings equity value estimates. Journal of

Accounting Research, 38(1), 45-70.

Goetzmann, W. N., & Jorion, P. (1993). Testing the predictive power of dividend yields. Journal

of Finance, 48(2), 663-679.

Gordon, M. J. (1959). Dividends, earnings and stock prices. The Review of Economics and

Statistics, 41(2), 99-105.

Graham, B., & Dodd, D. L. (1934). Security Analysis. New York: Mc-Graw Hill.

Imbarine, B., & Annuar, M.D. (2007). The relevance of Gordon’s model and earnings multiplier

approaches in emerging stock market: Test with appropriate refinements. International

Research Journal of Finance and Economics, 7, 140-152.

Jokipii, A., & Vahamaa, S. (2006). The free cash flow anomaly revisited: Finnish evidence.

Journal of Business Finance and Accounting, 33, 1-18.

Lamont, O. (1998). Earnings and expected returns. Journal of Finance, 53(5), 1563-1587.

Lundholm, R., & O’Keefe, T. (2001). Reconciling value estimates from the discounted cash

flow model and the residual income model. Contemporary Accounting Research, 18(2),

311-335.

McCluskey, T., Burton, B. M., Power, D. M., & Sinclair, C. D. (2006). Evidence on the Irish

stock market reaction to dividend announcement. Journal of Applied Financial Economics,

16, 617-628.

Penman, S. H., & Sougiannis, T. (1998). A comparison of dividend, cash flow, and earnings

approaches to equity valuation. Contemporary Accounting Research, 343-384.

Shiller, R. J. (1984). Stock prices and social dynamics. Brookings Papers on Economic Activity,

2, 457-498.

Stickel, S. E. (1990). Predicting individual analyst earnings forecast. Journal of Accounting

Research, 28(2), 409-417.

Tee, P. L., & Ng, K. K. (2009). Forecast accuracy of dividend growth model and price earnings

ratio model on Malaysian stocks. Journal of the Malaysian Institute of Certified Public

Accountants, 11-16.

Yardeni, E. (2003). Stock Valuation Model (4.1). Prudential Financial Research

This material may be protected under Copyright Act which governs the making of photocopies or reproductions of copyrighted materials.
You may use the digitized material for private study, scholarship, or research.

Back to search page