INVESTMENT HORIZON OF EXPECTED RETURN FORECASTS ISSUES ACKNOWLEDGEMENT

INVESTMENT HORIZON OF EXPECTED
RETURN FORECASTS ISSUES

ACKNOWLEDGEMENT
I am thankful to my tutor, friends and relatives who gave me guidance and support for
this project. In completing my dissertation on the suitability of equity and bond valuation
pertaining to short and long run they always encouraged me to do it in the best possible way. In
addition to this, I also appreciate my mentor for giving me guidance in preparing dissertation.
From his support and experience I was in the position to complete dissertation in a right manner.

ABSTRACT
In the present era, investors undertake valuation techniques to assess the suitability of an
investment when investment horizon is short. In this, to analyze the level to which valuation
techniques help in predicting return for short investment horizon deductive approach and
positivism philosophy has been used. In this, to analyze the suitability and effectiveness of
valuation techniques in predicting returns for short duration data has been collected by the
researcher from secondary sources. By applying the financial tools like DCF and bond valuation
techniques researcher has assessed the extent to which they give optimal solution in short term
investments. From evaluation, it can be stated that DCF model is highly effectual which in turn
provides investors with appropriate signal when horizon of investment is short. In addition to
this, outcome of DCF model can also be supported with the secondary data findings that entails it
is highly significant and assists in measuring the business risk more effectually. DCF model
considers both short and long term factors that have impact on the operations of firm. Thus, by
using such model investors can make idea about the suitability of investment when horizon is
short. Data pertaining to the five companies like IHG, AZN, BAE system, Associated British
food and Admiral group shows that intrinsic value of majority of the companies are same under
both horizon. Thus, it can be stated that valuation techniques present fair view in both short and
long investment horizon.

TABLE OF CONTENTS
CHPATER 1: INTRODUCTION....................................................................................................1
1.1 Background of the study........................................................................................................1
1.2 Research aims and objectives................................................................................................1
1.3 Research questions.................................................................................................................2
1.4 Rationale of the study............................................................................................................2
1.5 Significance of the study.......................................................................................................2
1.6 Structure of dissertation.........................................................................................................3
CHAPTER 2: LITERATURE REVIEW.........................................................................................5
2.1 Introduction............................................................................................................................5
2.2 Valuation techniques that assist in predicting future returns.................................................5
2.3 Suitability of valuation techniques for predicting the return on investments in short horizon
.....................................................................................................................................................7
2.4 Literature gap.........................................................................................................................9
CHAPTER 3: RESEARCH METHODOLOGY...........................................................................10
3.1 Introduction..........................................................................................................................10
3.2 Research type.......................................................................................................................10
3.3 Research approach...............................................................................................................10
3.4 Research philosophy............................................................................................................10
3.4 Data collection.....................................................................................................................11
3.5 Data analysis........................................................................................................................11
3.6 Reliability and validity........................................................................................................12

3.7 Ethical considerations..........................................................................................................12
3.8 Research limitations.............................................................................................................12
CHAPTER 4: DATA ANALYSIS AND FINDINGS...................................................................13
CHAPTER 5: CONCLUSION AND RECOMMENDATIONS...................................................26
REFERENCES..............................................................................................................................28

Research title: Do valuation techniques for bonds and equities generate investment predictions
for short-term?
CHPATER 1: INTRODUCTION
1.1 Background of the study
In the present times, with the motive to get high returns from investment, investors
undertake three stock market components namely dividend payout, earning growth, cash flows
and price-earnings ratio. All such three are the main indicators that provide deeper insight to the
investors about the extent to which concerned equity investment will prove to be beneficial for
them. Moreover, such valuation technique indicates the trend in which business unit is
performing and offering higher returns to the investors. PE ratio is one of the most effectual
indicators that furnish information about then manner in which stock valued in the market. Along
with this, such ratio also helps in assessing the amount that investors are willing to pay for
company’s earning (Arce, Mayordomo, and Peña, 2013). However, equity market predictability
though such valuation technique is appropriate when time horizon of investment is long. In
addition to this, in the case of bond valuation predictability through different techniques is
possible when the period of investment is long. In this, dissertation will present the level to
which valuation techniques are suitable for the prediction of investment return in short run. It
will also depict the techniques through which future value of an investment can be assessed and
predictability for the same improved.
1.2 Research aims and objectives
The main aim behind carrying out the present study is to assess the extent to which
valuation techniques assist in predicting investment returns for short-term horizon.
Research objectives
 To evaluate existing valuation techniques for predicting the future value of investment.
 To evaluate the suitability of valuation techniques for the predicting the return
investments having short horizon.

 To estimate & compare the value of selected bonds & stocks for short-term and long-
term.
 To investigate whether forecast based on yield and other techniques provide suitable
short term signals or not.
 To recommend the ways through which short term predictability can be enhanced.
1.3 Research questions
By taking into account the research aim and objectives following questions have been
drafted by the scholar. Such questions will provide direction to the researcher during whole
study:
Question 1: What is the significance of Valuation ratios in the case of short investment horizon?
Question 2: Which kind of techniques can be undertaken by the investors to predict the return
when investment horizon is short?
1.4 Rationale of the study
The rationale behind conducting the present study is to highlight whether valuation
techniques helps in predicting the return on short term investment or not. It is the researcher
issues because usually PE ratio, dividend payout ratio etc helps in making appropriate estimation
of return only when the time horizon of investment in long. It is the major issue now because in
the absence of having appropriate short term signals investors would not be in position to assess
return on concerned investment. Thus, by conducting secondary data investigation scholar will
present the ways through which short term predictability regarding the investment can be
improved. Hence, by using such measures investors would become able to take suitable decision
in the near future.
1.5 Significance of the study
The present study and its outcome are significant which in turn offers benefit to several
stakeholders such as investors, other scholars etc. Moreover, in the case of bond and stock
investors take decision about investment by predicting the level of return. Thus, study and its
outcome will provide deeper insight to the investors through which they can make appropriate
estimation about the returns when duration of investment is short. In addition to this, other
scholars who are going to do study on similar topic also would become able to get high level of

assistance from such study and its findings. Moreover, study will develop their understanding
about the valuation techniques that can be used to assess short term signals. Hence, study and its
findings will help other scholars in assessing gap and thereby assists them in developing suitable
hypothesis for further research.
1.6 Structure of dissertation
Chapter 1: Introduction
In the first chapter of dissertation, scholar frames and presents objectives behind
undertaking the present study. Besides this, researcher has also mentioned background and
significance of introductory section. Further, in this, structure has also been mentioned by the
researcher in this chapter.
Chapter 2: Literature review
Under the second chapter of dissertation, scholar will summarize the findings mentioned
books, journals and scholarly articles that are related to valuation ratios as well as forecasting of
return. Hence, by developing several themes as per the research objectives secondary data
analysis has been conducted.
Chapter 3: Research methodology
Researcher mentioned all the tools and techniques, in this chapter, that have been
undertaken to find out the level to which valuation ratios and other techniques support short term
predictability. In this, approach, philosophy, data collection and analysis techniques have been
mentioned by the researcher that suitable for the present study.
Chapter 4: Data analysis and findings
This chapter of dissertation is the main parts that clear present the outcome of issue
which is going to be investigated. In this, by doing empirical analysis scholar has presented the
level to which valuation ratios are suitable in making prediction about return on investment in
short horizon. Besides this, graphs and charts also have been added by the researcher to develop
better understanding about the issue.
Chapter 5: Conclusion and recommendations