The Study on the Stock Valuation Utilizing Earnings Reports and Proxy Firm Valuation Method
Asian Tax Journal Vol. 18 No. 3 (2017), pp. 217-239
Abstract
The purpose of this study is to select the most appropriate ‘valuation methods for listed stocks’ between PFM(proxy firm valuation method)s that adopted different kinds of multiples and earnings, and check if the investment in stocks that utilized the most appropriate PFM could achieve high return on investment. To verify this, I decided the studying period of this study, which is the first quarter 2013 to the fourth quarter 2015, and they used 8,919 company/year’s listed companies as sample. To achieve the purpose of the study, this study analyzed the prediction error, the absolute prediction error and frequency of each PFM, and analyzed the return on investment of it. The major analyze results of this study are the following. Firstly, PFM that weight of PER on operating profits and PBR is ‘3’ proved that it predicted the most estimated stock prices between PFMs. Secondly, the gap between the report period can not influence PFM’s absolute prediction error, but estimated stock prices that have high ROE predicted the more closer stock prices than estimated stock prices that have less ROE. Thirdly, the companies that have higher prediction error get higher return than the companies that have lower prediction error. This study used earnings reports to analyze PFM that have high predictable possibility, and it increased Investment timeliness, and it suggested Investment method that used prediction error, so it has significance that increased possibility of practical application.
Keywords
- proxy firm valuation method
- valuation methods for listed stocks
- return on investment
- earnings reports