1、Topic Six,Equity Markets Stock Valuation and Risk,2018/10/7,2,Stock Valuation Methods,Investment: In finance, the purchase of a financial product or other item of value with an expectation of favorable future returns. In general terms, investment means the use money in the hope of making more money.
2、Since the values of stocks change continuously, so do stock prices. Institutional and individual investors constantly value stocks so that they can capitalize on(利用) expected change in stock prices.,2018/10/7,3,Stock Valuation Methods,Investors conduct valuations of stocks when making their investme
3、nt decisions. They consider investing in undervalued stocks and selling their holdings of stocks that they consider to be overvalued(低买高卖). Price-Earnings (PE) Method(市盈率)The mean price-earnings (PE) ratio (based on expected rather than recent earnings) of all publicly traded competitors in the resp
4、ective industry to the firms expected earnings for the next year.,2018/10/7,4,Stock Valuation Methods,For example, a firm is expected to generate earnings of $3 per share next year. If the mean ratio of share price to expected earnings of competitors in the same industry is 15, then the valuation of
5、 the firms share is:Valuation per share= (expected earnings of firm per share) * (mean industry PE ratio) =$3*15=$45Future earnings are an important determinant of a firms value. Although earnings beyond the next year are also relevant, this method implicitly assumes that the growth in earnings in f
6、uture years will be similar to that of the industry.,2018/10/7,5,Stock Valuation Methods,Reasons for Different Valuations: Different forecasts for the firms earnings and the mean industry earnings over the next year. Disagree on the proper measure of earnings. Which firms represent the industry PE,
7、and how to weight each firm. Limitations of the PE Method:,2018/10/7,6,Stock Valuation Methods,市盈率: 公司股票的每股市价与每股盈利的比率: 市盈率 =每股市价/每股盈利理论上市盈率越低，投资价值越大. 影响股票市盈率变化的因素有： 预期上市公司获利能力的高低; 公司的成长能力; 投资者所获报酬率的稳定性; 当利率水平变化时，市盈率也应该作相应调整。在实际操作中，常用1比1年期银行存款利率，作为衡量市盈率是否合理的标准。如一年期银行存款利率为10，则合理的市盈率可为10.,2018/10/7,7,中
8、国石油：20元不是底 作者：朱益民，发布时间：2008-03-24 21世纪经济报道,3月20日，中石油发布了2007年业绩公告。由于0.75元的每股收益明显低于市场普遍预测的0.80元，公司股价重挫了3.01%. 虽然于中石油发布业绩公告前后，中信、中金、东方、西南、平安、安信、国泰君安等多家机构相继发表首次推荐或增持的评级报告，认为中石油的股价已经接近合理估值区间的下限，未来12个月动态市盈率合理估值区间在2530倍之间； 按2007年每股收益0.75元计算，中石油市盈率已经达到30倍以上，相对公司业绩成长的不确定性，20元能否成为中石油股价的底部真还有点悬了（没有丰富资源,同时缺乏技术实
9、力的中石油，其市盈率估值却是全球最高的）。,2018/10/7,8,中石油的市盈率的合理值,据其对全球18家国家石油公司+7家非国家石油公司在2000年-2006年的市场估值波动研究发现：完全是资源提供者的巨型石油公司平均市盈率估值仅仅略高于6倍；资源储备优势相对较弱、技术水平具有绝对优势的石油公司平均市盈率为11.4倍，资源储备不高、技术水平相对落后的石油公司平均市盈率为7.8倍。 按照资源与技术并重顺序排列，技术和资源同时具备综合优势的公司能够享受15-20倍市盈率的最高估值；技术领先、资源不足的公司平均市盈率估值在1012倍；而技术和资源都不足的公司仅能享受810倍市盈率。,2018/1
10、0/7,9,2018/10/7,10,2018/10/7,11,2018/10/7,12,Stock Valuation Methods,Dividend Discount ModelThe price of a stock should reflect the present value of the stocks future dividends.Where, t = period; Dt = dividend in period t; k = discount rate. By allowing to be revised or k to be revised, this model c
11、an account for uncertainty.Limitations of the Dividend Discount Model: the accurate valuation of a firm is rely on the dividend to be paid later, and the required rate of return by investors.,2018/10/7,13,2018/10/7,14,2018/10/7,15,Determining the Required Rate of Return to Value Stocks,The required
12、rate of return by investors: risk free rate + risk premiumCapital Asset Pricing Model (CAPM), Arbitrage Pricing Model (APM). CAPM (Sharpe 1964, Lintner 1965):The premise of CAPM: the only important risk of a firm is systematic risk, or the risk that results from exposure to general stock market move
13、ments. The CAPM is not concerned with the so-called unsystematic risk, which is specific to an individual firm, because investors can avoid that type of risk by holding diversified portfolios.,2018/10/7,16,2018/10/7,17,http:/nobelprize.org/nobel_prizes/economics/laureates/1990/sharpe-autobio.html?,T
14、he CAPM is built using an approach. familiar to every microeconomist. First, one assumes some sort of maximizing behavior on the part of participants in a market; then one investigates the equilibrium conditions under which such markets will clear. Since Markowitz had provided a model for the requis
15、ite maximizing behavior, it is not surprising that I was not alone in exploring its implications for market equilibrium. In 1965, John Lintner published his important paper with very similar results. Later, Jan Mossin published a version that obtained the same relationships in a more general setting
16、.,2018/10/7,18,This model implies that given a specific , investors will required a higher return on an asset that has a higher beta. A higher beta reflects a higher covariance between the assets returns and market returns, which contributes more risk to the portfolio of assets held by the investor.
17、,Determining the Required Rate of Return to Value Stocks,2018/10/7,19,Determining the Required Rate of Return to Value Stocks,Risk-free Rate: three-month treasury bill rate; Market return: Index return (S&P 500) or CRSP value weighted return.Estimating the firms beta: a firms beta is a measure of it
18、s systematic risk, as it reflects the sensitivity of the stocks return to the markets overall return.,2018/10/7,20,Limitations of the CAPM: the return of a particular firm is wholly related to the stock market premium by beta. The size effect: Small-capitalization firms earned higher average returns
19、 than is predicted by CAPM (Banz 1981, JFE, and Reinganum 1981, JFE); The value effect: firms with high earnings-to-price (E/P) ratios earn positive abnormal returns relative to the CAPM.Three-factor model (Fama & French 1993) http:/mba.tuck.dartmouth.edu/pages/faculty/ken.french/,Determining the Re
20、quired Rate of Return to Value Stocks,2018/10/7,21,Arbitrage Pricing Model (APT, Ross 1976)APT suggests that a stocks price can be influenced by a set of factors in addition to the market, such as economic growth, inflation, and other variables that could systematically influence asset prices.Where,
21、 E(R) = expected return of asset, B0 = a constant, F1 Fm = values of factors 1 to m, Bi = sensitivity of the asset return to particular force.,Determining the Required Rate of Return to Value Stocks,2018/10/7,22,APT suggests that the expected returns on assets are linearly related to the covariance
22、between asset returns and the factors. It allows for factors, such as industry effects, other than the market to influence the expected returns of assets. A possible disadvantage of the APT is that it is not as well defined as the CAPM.,Determining the Required Rate of Return to Value Stocks,2018/10
23、/7,23,Factors That Affect Stock Prices,Economic factors, Market-related factors, and Firm-specific factors. Economic FactorsA firms value should reflect the present value of its future cash flows. Many investors use forecasted earnings to determine whether a firms stock is over- or undervalued.Impac
24、t of Economic Growth: An increase in economic growth increase a firms cash flow and valuation. Employment, GDP, Retail Sell, Personal Income, Fiscal and Monetary Policies, etc. Impact of Interest Rates: Risk-free rate is the most prominent economic forces driving stock market prices. Stocks should b
25、e purchased only if they are appropriately priced to reflect a sufficiently high expected return above the risk-free rate.,2018/10/7,24,Market-related FactorsInvestor sentiment, the January effect.Investor Sentiment: stock valuations reflect expectations. If most investors expect that the economy wi
26、ll improve in the near future, the stock prices may rise.January Effect: Because many portfolio managers are evaluated over the calendar year, they then to invest in riskier small stocks at the beginning of the year and shift to larger (more stable) companies near the end of the year to lock in thei
27、r gains. This tendency places upward pressure on small stocks in January of every year, causing the so-called January effect.,Factors That Affect Stock Prices,2018/10/7,25,Factors That Affect Stock Prices,Firm-Specific FactorsStock market participants usually focus on the information about a firms s
28、ales growth, earnings, or other characteristics than may cause a revision in the expected cash flows to be generated. Dividend Policy Changes: An increase (decrease) in dividends may reflect the firms expectation that it can more easily afford (will not have sufficient cash flow) to pay dividends.Ea
29、rnings Surprises: When a firms announced earnings are higher (lower) than expected, some investors raise their estimates of the firms future cash flows and therefore revalue its stock upward (downward).,2018/10/7,26,Factors That Affect Stock Prices,Acquisition(Takeover): When one company purchases a
30、 majority interest in the acquired; Merger: The combining of two or more companies, generally by offering the stockholders of one company securities in the acquiring company in exchange for the surrender of their stock. Divestiture: Disposition or sale of an asset by a company. A company will often
31、divest an asset which is not performing well, which is not vital to the companys core business, or which is worth more to a potential buyer or as a separate entity than as part of the company.,2018/10/7,27,Factors That Affect Stock Prices,公司并购指公司的兼并和公司收购，他们并非同一概念。公司兼并（merger）指经由转移公司所有权的方式，一个或多个公司的全部
32、资产与责任都转为另一公司所有，这样，一个或一些原有的公司（即被兼并方）消失了。接受其资产与责任的公司即兼并方以自己的名义继续运作下去。公司收购（Acquisition 或Takeover）指一个公司经由收买股票或者股份的方式，取得另一公司的控制权或管理权，另一公司仍然存续而不必消失。在实践中，收购与兼并又合并简称为“并购” 。 资产剥离(divestiture)是指公司将其现有的某些子公司、部门、产品生产线、固定资产等出售给其他公司，并取得现金或有价证券的回报。,2018/10/7,28,Factors That Affect Stock Prices,Acquisitions and Div
33、estitures: Average Premia for the target shareholders in U.S. acquisitions are 24% (Andrade et al. 2001, JEP), and higher premia for hostile takeovers (Schwert 2000, JF). The gain for bidder shareholders and the overall gain are indistinguishable from zero (Andrade et al. 2001, JEP). Expectations: I
34、nvestors may use the firms financial reports or recent statements by the firms executives to speculate on the firms policies or adjust their anticipation.,2018/10/7,29,What Moves Stock Prices? by Cutler, et al(1989),This paper estimates the fraction of the variance in aggregate stock returns that ca
35、n be attributed to various kinds of news. First, we consider macroeconomic news and show that it is difficult to explain more than one third of the return variance from this source. Second, to explore the possibility that the stock market responds to information that is omitted from our specificatio
36、ns, we also examine market moves coincident with major political and world events. The relatively small market responses to such news, along with evidence that large market moves often occur on days without any identifiable major news releases, casts doubt on the view that stock price movements are
37、fully explicable by news about future cash flows and discount rates.,2018/10/7,30,Stock Risk,A stocks risk reflects the uncertainty about future returns, such that the actual return may be less than expected. The return from investing in stock over a particular period is:Where, INV = the initial inv
38、estment, D = dividend, SP = selling price of the stockThe main source of uncertainty is the price at which the stock will be sold.,2018/10/7,31,Measure of Risk: Price volatility, Beta, and Value-at-Risk.Volatility of a Stock: Measure the degree of uncertainty surrounding the stocks future returns. A
39、bsolute return; standard deviation of returns.,Stock Risk,2018/10/7,32,Stock Risk,2018/10/7,33,Stock Risk,2018/10/7,34,Volatility of a Stock Portfolio: A portfolios volatility is dependent on the volatility of the individual stocks in the portfolio, the correlations between returns of the stocks in
40、the portfolio, and the proportion of total funds invested in each stock.Where, standard deviation of returns of the i-th stock and j-th stock respectively; correlation coefficient between the i-th and j-th stocks; proportion of funds invested in the i-th stock and j-th stock respectively.,Stock Risk
41、,2018/10/7,35,Stock Risk,2018/10/7,36,Stock Risk,2018/10/7,37,Beta of a Stock: measures the sensitivity of a stock returns to market returns. It captures the movement in a stocks price that is attributable to movements in the stock market. It ignores stock price movements attributable to firm-specif
42、ic conditions (this kind of unsystematic risk can be avoided by maintaining a diversified portfolio).High-beta stocks are expected to be very volatile because they are more sensitive to market returns over time. Conversely, low-beta stocks are expected to be less volatile because they are less respo
43、nsive to market returns.Beta of a Stock Portfolio:,Stock Risk,2018/10/7,38,Adjusted R-squared,R-squared: the R-squared (R2) statistic measures the success of the regression in predicting the values of the dependent variable within the sample. The statistic will equal one if the regression fits perfe
44、ctly, and zero if it fits no better than the simple mean of the dependent variable.,2018/10/7,39,Adjusted R-squared,Adjusted R-squared: One problem with using R2 as a measure of goodness of fit is that the R2 will never decrease as you add more regressors. In the extreme case, you can always obtain
45、an R2 of one if you include as many independent regressors as there are sample observations. The adjusted R2 , commonly denoted as , penalizes the R2 for the addition of regressors which do not contribute to the explanatory power of the model. The adjusted is computed as:The is never larger than the
46、 R2 , can decrease as you add regressors, and for poorly fitting models, may be negative.,2018/10/7,40,30 component stocks of Shanghai 180 Index (at the end of year 2002) with maximum trading volume among the 180 stocks from 1997-1 to 2002-12.,From 1997-1 to 2002-12,2018/10/7,41,In 1997,2018/10/7,42
47、,In 1998,2018/10/7,43,In 1999,2018/10/7,44,In 2000,2018/10/7,45,In 2001,2018/10/7,46,In 2002,2018/10/7,47,Value at Risk: It estimates the largest expected loss to a particular investment position for a specified confidence level. Its intended to warn investors about the potential maximum loss that c
48、ould occur. If investors are uncomfortable with the potential loss that could occur in a day or a week, they can revise their investment portfolio to make it less risky.,2018/10/7,48,2018/10/7,49,Forecasting Stock Price Volatility,Since the operations of a particular firm and its competitive environ
49、ment can change over time, its risk can change as well. Investors are most concerned with the risk of their investments over the future horizon in which they hold those investments. Methods of Forecasting Stock Price VolatilityHistorical Method: a historical period is used to derive a stocks standar
50、d deviation of returns, and then that estimate is used as the forecast over the future.,2018/10/7,50,2018/10/7,51,Award Ceremony Speech,Dear Professor Engle: Your contribution to economic sciences paved the way for the new field of financial econometrics. Your ARCH methods have unleashed a flood of
51、applications, thereby helping investors in financial markets to forecast volatility and manage their risks. Dear Professor Granger: Your contribution to economic sciences has transformed research and forecasting with macroeconomic time series. Your cointegration methods have given researchers and practitioners a statistical tool-kit to model and estimate economic dynamics.,
