A diffusion model for growth stocks

A diffusion model for growth stocks

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Article ID: iaor20071610
Country: United States
Volume: 29
Issue: 2
Start Page Number: 191
End Page Number: 212
Publication Date: May 2004
Journal: Mathematics of Operations Research
Authors: ,
Keywords: diffusion process
Abstract:

Since growth stocks tend to have low or even negative earnings and high volatility, it is a great challenge to derive a meaningful mathematical model within the traditional valuation framework. This paper attempts to derive a suitable diffusion model for growth stocks by using the idea of size distribution. Numerical illustration of the model based on the data covering the time period of the recent boom and burst of the ‘Internet bubble’ is also presented.

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