An Empirical Analysis Of The A-share Stock Valuations And Fundamental Elements

Domestic stock market has grown nearly 20 years. In the development of these two decades, there have been many new changes on the market, such as the expanding size of the stock market and constantly improving market mechanism and enhancing information disclosure of listed companies, the proportion of institutional investors is increasing. The way of manipulation in former stock market has become increasingly difficult to implement, the farce of Bai Yuan Trousers has fully demonstrated that without support of fundamentals, the form of stock alone is pretty difficult to attract follow-up fund. Fundamental factors have become important considerations in investors’ valuation of A shares.Via review of previous valuation theory, we find that the past valuation model pay more attention to the relationship between fundamental elements and price/excess returns, less to the analysis of valuation; valuation models given by many papers can be transformed into models about valuation and fundamental elements. Also during the stock investment, the valuation is considered the important thing; the valuation is merely a subjective judgment of investors or has correlation with the fundamental elements? This is the main problem to be solved in this article.In this paper, the A-share listed company’s data for nearly three years is used to build multi-factor model for the valuation and fundamental elements. We use principal component analysis to consider the relationship between the valuation and fundamental elements. This paper is divided into three parts. In the first part, the paper sorts out mainly stock valuation theory and methods. A variety of stock valuation theory and methods have been created, and these theories and methods of valuation have formed systems. In accordance with the core idea of these models, these models can roughly be divided into discount model, the relative valuation methods, information theory and measurement concept valuation model.In the second part, based on existing empirical research, this paper gives our research model combined with the actual situation in the A-share market. This paper argues that multivariate analysis model can meet the needs of our analysis; the paper chooses PE value as the dependent variable, because that PE is the most commonly used indicators in the stock valuation. When choosing fundamental indicators, we selected 20 indicators such as net profit growth, volatility, industry PE, etc., and these 20 indicators divided into 8 classes, such as equity, cash flow, capital structure, trading activity. The main steps of this analysis can be expressed as follows:1, selecting the sample data, preprocessing the sample data, such as adjusting those outliers, dimensionless processing, adjusting those extreme values; 2, building a multi-factor model, using regression analysis and factor analysis approach.In the third part, we use three years’data from 2010-2013 as the source of our analysis. This paper selects the fifth day in May as the selected node data, because that listed companies publish annual reports in March or April. The final conclusions of the study indicate that the fundamental elements can explain 40-50% of company valuation, capital structure, scale of capital, management ability, market indicators and other fundamental indicators impact the stock valuation; given the difference between predicted valuation and actual valuation, we can pick out underestimated group and overestimated group; then test their future share price performance. The results proved that the model is valid, but also illustrates the fundamental elements can help investors predict the valuation of listed companies.