Based On The Industry Investment Effectiveness Study Peg

In practice, as the price-earnings ratio (PE), earnings growth ratio (PEG) have become an important reference to analysis the stock value. Also, PEG indicator which is on the basis of price-earnings ratio, effectively make up for the defect which does not taking into account the future net profit growth when we invest.First, we review the theory of stock valuation, two classic models about price-earnings ratio which are Gordon model and NPVGO model. Then, we derive a theoretical model of PEG which has a negative correlation with net future earnings growth rate and profit.This article focuses on the industry PEG which is a new field of study. First, the paper prepares the industry PEG formula about the China SFC23industries in2001-2010. Then, we analyze the industry distribution of PEG through describing, and divide the industry into three categories:low PEG industry, high PEG industry and unstable PEG industry. Secondly, the paper takes empirical analysis that is multiple regression method to test the affecting factors. And the result is that there are three factors out of6assuming factors including the interest rate, the next phase of the Shanghai index and the net profit growth of the industry have passed the model test. Finally, this paper focuses on the relationship between PEG and the yield, and gets three conclusions:1. There is a negative correlation between PEG and the rate of return. It is more significant in bull market than in bear market.2. The negative correlation exists in the every industry. The degree is higher in cyclical industry than in non-cyclical industry.3. Drawing on Basu’s research methods, Building two combinations of different industries relaying on the PEG level, we test whether there is a long-term significant difference about yield. The results showed that, every year, returns of lower PEG portfolio are higher than the higher PEG portfolio from2002to2011. The result is more apparent in the bull market from2005to2007.