Document Type Master's Dissertation Author Dowelani, Musimuni URN etd-12052012-085923 Document Title Comparing share valuation models in boom and recession conditions : a South African study Degree MCom Department Financial Management Supervisor
Advisor Name Title Mr J S de Beer Supervisor Keywords
- business cycles
- valuation performance
- dividend discount model
- intrinsic value
- price earnings model
Date 2012-09-07 Availability unrestricted AbstractThe study’s main concern was the extent to which the price earnings (P/E) valuation model and constant growth dividend discount valuation model (DDM) can estimate the intrinsic value of a share. The context within which the concern was addressed is the boom and recession conditions of South Africa during the period 1994–1999.
The study used the following descriptive statistics to make a comparison of the performance of each model:
- Theil’s inequality coefficient;
- coefficient of variation;
- percentage improvement in the inter-quartile range (%IMP); and
- the Wilcoxon test and the Kruskal-Wallis test.
The study found that:
- the DDM is more efficient in estimating the intrinsic value in the boom period compared to the recession period.
- P/E is more efficient in estimating the intrinsic value in the recession period than the boom period.
- When the business cycle changed from a boom to a recession the %IMP increased for the DDM and the P/E model showing that there was no improvement in performance. Instead, it showed an increase in the IQR of each model. The increase in the DDM was smaller than that of the P/E model.
- The difference between the absolute valuation errors of the DDM across the two phases of the business cycle (boom and recession) was not statistically significant while those of the P/E were significant.
© 2012 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria. No part of this work may be reproduced or transmitted in any form or by any means, without the prior written permission of the University of Pretoria.
Please cite as follows:
Dowelani, M 2012, Comparing share valuation models in boom and recession conditions : a South African study, MCom dissertation, University of Pretoria, Pretoria, viewed yymmdd < http://upetd.up.ac.za/thesis/available/etd-12052012-085923/ >
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