Empirical Study on Stock Valuation Model Based on Multiple Linear Regression Analysis
Stock valuation is an important aspect of corporate investment activities. But the current methods used by assets appraisal institutions in our country are not quite reasonable. In this paper, a stock valuation modeling method based on multiple linear reg
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Empirical Study on Stock Valuation Model Based on Multiple Linear Regression Analysis Qing Li and Ai-min Li
Abstract Stock valuation is an important aspect of corporate investment activities. But the current methods used by assets appraisal institutions in our country are not quite reasonable. In this paper, a stock valuation modeling method based on multiple linear regression analysis is proposed. It attempts to reveal the intrinsic relationship between stock price and financial indicators of a listed company. By making an empirical case study of listed mechanical industry companies, this paper validates the feasibility and adaptability of this new modeling method, and tries to set up a reasonable stock valuation model to be taken as a reference for assets evaluation institutions. Keywords Financial indicators • Multiple linear regression • Principal component analysis • Stock valuation
46.1 Introduction Stock valuation theory has developed into a set of relatively complete and mature valuation methods and models after a long-term of exploring. It is widely used by European and American market in affairs of company investment, merger and reorganization, etc. Current stock valuation methods available are listed as follows: discounted cash flow method, relative value method, real option method and evaluation method based on assets (Christensen and Feltham 2009). In practical affairs of valuation in a mature market, discounted cash flow method and relative value method are the most popular ones (Zheng Zhong 2001).
Q. Li • A. Li () Department of Management Engineering, Zhengzhou University, Zhengzhou, China e-mail: [email protected] E. Qi et al. (eds.), The 19th International Conference on Industrial Engineering and Engineering Management, DOI 10.1007/978-3-642-37270-4 46, © Springer-Verlag Berlin Heidelberg 2013
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Assets appraisal institutions in China generally prefer evaluation method based on assets instead of relative value method. According to a survey made in 2003, only 3.47 % of assets evaluation institutions in China took relative value method as the main body of valuation method. On the contrary, more than 82.6 % of them used little or even did not use any relative valuation method. Among relative value methods applied in stock market, only P/E method is approachable in most cases (Hui Tian 2004). There are three reasons that may explain such a situation. Firstly, assets evaluation industry in our country lacks in enough experience on research and application, which leads to a weak theoretical basis and poor professional capability. Secondly, the implementation of stock-market regulations is constrained by the current market environment. Thirdly, in addition to objective reasons of market environment, the poor application of income present value method and relative valuation method in our country is mainly due to the imperfection of existing evaluation methods and models (Lin Li 1999). Aiming at these problems occurring in stock valuation process in Chinese stock market, this
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