*3.5. Model Inputs*

Table 5 presents the model inputs. Many discussions can be made regarding the level of the numerical values included in simulations. The purpose of this article is not to provide levels for these indicators based on empirical data or theoretical literature. The choice of these parameters should be adapted, case by case, function of the analyzed company. For some input variables we have preferred to use round values (e.g., *TA*0).

<sup>14</sup> Most of the papers in finance stipulate that this required rate of return is related to the assumed risk.

<sup>15</sup> This variable can be also connected to the aversion to loss (Shefrin and Statman 1985; Odean 1998).


**Table 5.** Model inputs.

Other variables are intensely studied in different contexts. For instance, if the investors in our simulations should consider the past records of market return as proxies for expected market return, the variability of these expectations should be somehow exaggerated. For instance, the Standard and Poor Composite Index rose 85% (between 1927 and 1929) and 69% (between 1954 and 1957), but fell 56% (between 1973 and 1975) and 52% (between 1929 and 1933) (the standard deviation of the market return was 17%) (Shiller 1987). In our simulations, we have preferred a more prudent approach and we have considered *Et*−1(*kMt*) to be normally distributed16, with a mean of 2.5 and a standard deviation of 2.5. Of course, the program allows for considering a larger range.
