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Equity Pricing: Perfect Foresight versus Rational Expectations
Theoretical Economics Letters
This study demonstrates that when the length of the excess earnings period is not known with certainty, all rational expectations pricing models result in some degree of overpricing when compared ex post facto to perfect foresight models. This study examines the time paths of price under existing valuation models such as Baek et al.  and Ohlson and Jeuttner-Nauroth  under the following stylized facts: we assume that we are dealing with an all-equity firm with opportunity cost of equity ofdoi:10.4236/tel.2018.815206 fatcat:ok2r7ikm4vfnnlcqsuwlrycy6e