Test your knowledge 20

Which of the following forecasting approach takes past prices into account… A. Econometrics based approach B. Consensus based approach C. Both of the above. Cheers :slight_smile:

A Consensus based approach would be based on opinions.

Wouldnt the consensus opinion be influenced by the recent price history? I think so. pick C.

Hi GetSetGo, Thanks for posting these questions, its helpful to have a chance to review things. Thanks, stromey

You are welcome stromey. I am helping myself also in the process. Posting questions help solidify concepts in my mind and help me remember easily. Working and participating with others (if done in reasonable limits) generates positive momentum. We can feed off other peoples momentum. Most of us writing level 3 are capable of passing level 3. We just need the required motivation to commit the hours required to pass this exam. There are many brilliant people on this forum from whom we can learn new things and clarify things we already know. Level 3 also needs a specific style of preparation and sharing our thoughts with one another gives us better insights as to how we can approach the exam. Cheers :slight_smile:

Maybe you can do a full blown mock exam for us as the exam date approaches. Thanks for the ?'s.

I go for A because Consensus based can use relative valuation (ie. use forward PE or industry PE/ industry PB ratio to value equity per share)

Consensus can be based on pretty much everything. So I take A.

This is an OLD CFA exam question. I want to post the CFAI answer to this question before the thread falls too far behind. According to CFAI the answer is C. (I also thought A was the answer and got it wrong). Cheers :slight_smile:

I have two questions on this topic. 1) Any forecasting approach which does not take past prices into account? :smiley: 2) What is the difference between Capital Market Expectation and Economic Forecasting? LOS23.c: demonstrate the application of formal tools for setting capital market expectations, including statistical tools, DCF model, RP approach, and financial equilibrium models. LOS23.m: compare and contrast the major approaches to economic forecasting. (econometrics, economic indicators and checklist).