Forecasting Fundamental Stock Price Distributions

Simon Fraser University Working Paper No. 96-2

Sauder School of Business Working Paper

52 Pages Posted: 30 Oct 2000  

R. Glen Donaldson

University of British Columbia (UBC) - Sauder School of Business

Mark J. Kamstra

York University - Schulich School of Business; Rady School of Management

Date Written: March 2000

Abstract

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

Donaldson, R. Glen and Kamstra, Mark J., Forecasting Fundamental Stock Price Distributions (March 2000). Simon Fraser University Working Paper No. 96-2; Sauder School of Business Working Paper. Available at SSRN: https://ssrn.com/abstract=244572 or http://dx.doi.org/10.2139/ssrn.244572

R. Glen Donaldson

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Department of Finance
Vancouver BC V6T 1Z2
Canada
604-822-8344 (Phone)
604-822-8521 (Fax)

Mark J. Kamstra (Contact Author)

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

Rady School of Management ( email )

9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States

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