"A Student Perspective on Using Monte Carlo Simulation as a Tool to Predict Equity Target Prices:How Important are the Length of Input Periods and Sectors?"
Location
Parker College of Business (PCOB)
Session Format
Oral Presentation
Co-Presenters and Faculty Mentors or Advisors
Dr. Axel Grossmann, Faculty Advisor
Abstract
This paper provides an educational guide from a student’s perspective on how to implement a Monte Carlo simulation for equity research into the classroom, for example, in a student-managed investment fund. In this context, the paper discusses the theory and application of the Monte Carlo simulation for developing equity target prices and for financial risk modeling. Further, an application of the Monte Carlo simulation in the investment field is provided by estimating one year ahead target prices of 449 companies within the S&P 500. Additionally, the study investigates which data input time window presents the “optimal” period when using Monte Carlo simulations to forecast equity prices. Finally, the paper examines the accuracy of Monte Carlo simulation price target estimates across various sectors. The findings show that highest average forecast accuracy is obtained using a five-year data input window. Moreover, the forecast accuracy is highest within the Consumer Staples, Utilities, and Health Care sectors, while the worst forecast performance is found in the Energy sector.
Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 License.
Presentation Type and Release Option
Presentation (Open Access)
Recommended Citation
Varghese, Joel, ""A Student Perspective on Using Monte Carlo Simulation as a Tool to Predict Equity Target Prices:How Important are the Length of Input Periods and Sectors?"" (2021). GS4 Georgia Southern Student Scholars Symposium. 16.
https://digitalcommons.georgiasouthern.edu/research_symposium/2021/2021/16
"A Student Perspective on Using Monte Carlo Simulation as a Tool to Predict Equity Target Prices:How Important are the Length of Input Periods and Sectors?"
Parker College of Business (PCOB)
This paper provides an educational guide from a student’s perspective on how to implement a Monte Carlo simulation for equity research into the classroom, for example, in a student-managed investment fund. In this context, the paper discusses the theory and application of the Monte Carlo simulation for developing equity target prices and for financial risk modeling. Further, an application of the Monte Carlo simulation in the investment field is provided by estimating one year ahead target prices of 449 companies within the S&P 500. Additionally, the study investigates which data input time window presents the “optimal” period when using Monte Carlo simulations to forecast equity prices. Finally, the paper examines the accuracy of Monte Carlo simulation price target estimates across various sectors. The findings show that highest average forecast accuracy is obtained using a five-year data input window. Moreover, the forecast accuracy is highest within the Consumer Staples, Utilities, and Health Care sectors, while the worst forecast performance is found in the Energy sector.
