Forecasting Fundamental Stock Price Distributions
Simon Fraser University Working Paper No. 96-2
52 Pages Posted: 30 Oct 2000
Date Written: March 2000
This paper develops a procedure for forecasting the distribution from which future stock prices/returns will be drawn fundamentally. Our methodology therefore provides a means for forecasting future stock prices and return volatilities and thus for fundamentally valuing assets such as stocks and stock options. Statistical tests reveal the desirability of our procedure over those currently in use. For example, our fundamental volatility forecasts outperform standard ARCH-based models in forecasting the volatility of stock returns, and fundamental prices from our procedure reject bubbles and excess stock market volatility while prices from traditional fundamental models fail to do so.
Keywords: Fundamental asset pricing, forecasting, volatility, bubbles
JEL Classification: G12, C14, C15, C22, C53, N22
Suggested Citation: Suggested Citation