The Predictive Capacity of the "Discounted Cash Flow" Valuation Model: An Empirical Assessment on the European and United States’ Stock Markets

Author:Univ. Lecturer Ştefana DIMA (CRISTEA), Ph. D.; Univ. Prof. Bogdan DIMA, Ph. D.; Carmen ANGYAL, Ph. D.Student; Simona PACIOAGĂ, Ph. D.Student; Otilia ŞĂRĂMĂT, Ph. D.Student

JEL:G14, M49

DOI:

Keywords:valuation, discount, financial assets, forecasting

Abstract:
On a dataset of 1497 European listed companies and 3074 US listed companies, operating in ten different economic sectors, we have tested the „short-run” predictive capacity of the discounted cash flow valuation model, seeking to validate three research hypothesis based on the current literature. Also, several ex ante hypotheses concerning the levels of discount factor are considered in four main scenarios and the errors generated for each individual sector are comparatively analyzed. The main outcome of this analysis is that the predictive capacity of the model depends significantly on sectors’ characteristics and it is non uniform for the examined markets.

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