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Conference of 2007
Finance Center Münster
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Standard equity valuation approaches (i.e. DDM, DCF, and RIM) are based on restrictive assumptions regarding the availability and quality of payoff data. Therefore, we provide extensions of the standard approaches being suitable under less than ideal conditions (e.g. dirty surplus accounting and inconsistent steady state growth rates). Empirically, our extended models yield considerably smaller valuation errors, suggesting that markets are aware of the standard models’ deficiencies. Moreover, obtaining identical value estimates across the extended models, our approach provides a benchmark implementation. This allows to quantify the magnitude of errors resulting from individual violations of ideal conditions.
Abstract
Extended Dividend, Cash Flow and Residual Income Valuation Models - Accounting for Deviations from Ideal Conditions
Hess, Dieter; Homburg, Carsten; Lorenz, Michael; Sievers, SoenkeStandard equity valuation approaches (i.e. DDM, DCF, and RIM) are based on restrictive assumptions regarding the availability and quality of payoff data. Therefore, we provide extensions of the standard approaches being suitable under less than ideal conditions (e.g. dirty surplus accounting and inconsistent steady state growth rates). Empirically, our extended models yield considerably smaller valuation errors, suggesting that markets are aware of the standard models’ deficiencies. Moreover, obtaining identical value estimates across the extended models, our approach provides a benchmark implementation. This allows to quantify the magnitude of errors resulting from individual violations of ideal conditions.