Relative Valuation Of Investments In Securities

With gradual progress of Chinese stock market, investors involving into stock investing are increasing. Different investors have different strategies. But many investment strategies come from western investment theories, whether are these theories effective in Chinese stock market? Deeply research is urgently needed for this question to avoid investment instructions by incorrect investment theories.This paper precedes analysis by examples on investment income in Shanghai and Shenzhen Stock Market from 1994 to 2005 by investment strategies with financial ratios as decision basis, inspecting average rate of return of various investment strategies, standard deviation for investment income, Sharpe ratio of reward to risk, and analysis on these results. Financial ratios in research include: price-to-book ratio, price-to-earnings ratio, price-to-sales ratio. In the research, with survivorship bias and look-ahead bias being eliminated, the detailed analysis on long term investment income of various strategies has been made.Through research, the fact of Chinese stock market could be known from the point of view of the applicability of investment strategies. It could get a conclusion that the characteristic of Chinese stock market is similar with western investment theories. Some investment strategies which are in favor of by the theorists and media are also effective in Chinese stock market.