Forecasting Stock Value

Abstract

When a stock market is less than perfectly efficient and investors are less than perfectly rational, investors can profit by trading the stock whenever its price differs from its true value. The true value can be obtained by forecasting the book value of the stock to the time of the next transaction opportunity, and then adjusting for under and over valuation of assets and liabilities. In making a forecast based on the previous book value, this study asks if using data on market share and production experience available at the same previous time can improve the forecast, finding that the answer, as supplied by firms of a computer-assisted gaming simulation, is affirmative. Caution is suggested in generalizing the results obtained from the gaming-simulation setting to the everyday-world settings. In the field of business strategy, however, the error of relying too little on gaming simulation research may exceed the error of relying too much.