Investor expectations and the AIRR model

Abstract

The two-stage growth model (Danielson, 1998) empowers analysts to quantify the growth expectations supporting a firm’s stock price. This article merges that two-stage growth model with the AIRR model developed by Magni (2010, 2013). The new model simplifies the calculation of the firm’s expected competitive advantage period and the expected annual growth rate. The new model can be used to quantify expectations for both dividend and non-dividend paying firms and when the return on new investments or the required return on equity might not be constant in the future.