Comparing the Predictive Ability of Stock Valuation Methods

Abstract

The necessity for accurate stock price predictions has prompted the evolution of various equity valuation models. To ascertain the most prevalent valuation method utilized in our country and to evaluate which method demonstrates superior predictive capacity, we conducted a content analysis of the valuation reports from 32 companies that have recently issued or augmented their shares on the Mongolian Stock Exchange (MSE). Our study compared the appraisers' forecast prices with the actual market prices over a 12-month period following the issuance of stocks. The findings of this research reveal that the Discounted Cash Flow (DCF) model is the most frequently employed methodology, whereas the Residual Income Model (RIM) showed the highest predictive accuracy, achieving a rate of 44.6%. Future research should focus on adapting these methodologies to enhance predictive accuracy within the Mongolian context and explore the feasibility of employing alternative forecasting approaches that offer greater precision.