| The thoughts of value investing originated from the book named "Security Analysis" which was written by Graham and Dodd in 1934,the book systematically introduced the ideas and methods on value investing strategy.Descendants extended and expanded the theory on its basis,empirically tested the validity of value investing strategy in global stock market,they found that,in most stock market,value investing strategy had certain feasibility.With the increase in national income and rise in prices,the needs of investment of domestic residents is increasing.Most of our investors are individual investors and investors themselves are directly involved in investment decisions.Due to the investors are lack of high professional skills and their risk management awareness is not strong,they often suffer investment losses in the investment process and are difficult to obtain sustainable profits.In such a realistic background,an investment strategy proven to be useful is particularly necessary.This article will introduce a value investing strategy to China’s A-share market and do an empirical test.Unlike traditional value investing strategy uses only earnings,book value,sales ratio and other financial indicators to select value stocks,this paper has also added the price cash flow ratio,the ratio of enterprise value to earnings before interest,taxes depreciation and amortisation.The paper first used a single financial indicator to build stock portfolios,tested the effectiveness of the value investing strategy.Then it used scoring assignment method to construct a composite indicator to calculate the total score of the portfolios and selected the value portfolios according to the level of scores based on the five indicators.In empirical terms,through quantitative and statistical methods,this paper tested the market performance of the value portfolios from the year 2000 to 2015 and found that,the value investing strategy based on a single indicator could obtain an abnormal return,while the value investing strategy based on a composite indicator could further improved the original value investing strategy.In order to further optimize the value investing strategy,we introduced the 120-day moving average in the subsequent inspection process.By using the moving average,we selected appropriate time to implement the value investing strategy in A-share market.The empirical results showed that by the introduction of the technical indicator,the value investment strategy could obtain a higher excess returns.This paper aims to introduce the value investing strategy based on financial indicators and technical indicators to provide more investment advice for individual investors and institutional investors. |
