Assessing Valuation Model Forecasting Accuracy in Healthcare: a Simulated Comparison of Capm and Ddm
Year: 2025
Type: article
Abstract: This study addresses the challenges of valuing firms in the volatile healthcare sector by rigorously comparing the fore- casting accuracy of the Capital Asset Pricing Model (CAPM) and the Dividend Discount Model (DDM). Employing a controlled synthetic dataset of 100 healthcare firms spanning 2019–2021, we aim to isolate model performance, free from real-world confounding factors. Forecast accuracy is measured using Mean Absolute Error (MAE) and Percent- age Absolute Error (PAE). Results indicate CAPM significantly outperforms DDM (e.g., CAPM’s average PAE of 3.47% vs. DDM’s 8.48%), particularly due to healthcare’s variable dividend policies. This research provides empirical evidence from a controlled setting on model suitability, guiding financial practitioners toward more reliable valuation techniques and contributing to the literature on model selection in sector-specific financial contexts.
Author: Wil Martens
Institution: National Sun Yat-sen University
Language: English
Subfield: Strategy and Management
Domain: Social Sciences
Open Access status: diamond
OpenAlex ID: W4414919342
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