Campus Only Senior Thesis
Bachelor of Arts
© 2012 Nicholas Coady Smith
This paper uses stock market data from 2000-2010 to examine the role long-term growth (LTG) uncertainty plays in equity valuations. In theory, the convex relationship between LTG and per-share value suggests a positive relationship between LTG uncertainty and analysts’ price targets, with higher levels of LTG uncertainty leading to higher, less accurate price targets. However, this paper finds conclusive evidence that analysts are not incorporating LTG uncertainty into their pricing models. This leaves uncertainty regarding the discount rate and the perpetuity growth rate as the only remaining potential sources of upward pressure on analysts’ price targets that are attributable to uncertainty.
Smith, Nicholas Coady, "Assessing the Effect of Long-Term Growth Uncertainty on Stock Valuations" (2012). CMC Senior Theses. 320.
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