The Research On The Influencing Factors Of The P/E Ratio Of A Shares Stock Market In Shanghai And Shenzhen Stock Exchange

The P/E ratio is the value of the stock price per share divided by the earning per share at a specific period of time.There are two kinds of P/E ratios:from the point of the whole stock market—the average P/E ratio;from the point of the the individual company—the company P/E ratio.The analysis of the average P/E ratio can help investors identify the risks of stock market and assess the valuation level of the whole market.The analysis of company P/E could help investors invest stocks and have a support when making investment decisions based on P/E ratio to achieve the desired return.Just because of the important investing reference value of the P/E ratio,it is necessary to analyse the underlying influencing factors of P/E ratio in order to realize the investment value.In this paper,firstly,we set up theoretical hypotheses according to the macro influencing factors of the average P/E ratio and micro influencing factors of the company P/E ratio.Secondly,we conducted the empirical analysis using the sample data(2002-2004) before the reform of non-tradable shares and the sample data(2005-2007) after the reform. The conclusions that can be drawn from our findings was five macro factors have significant influences and explanatory powers on average P/E ratio of the Shanghai and Shenzhen A share maker.The five macro factors are exchange rates,the rate of stamp tax,Shanghai Stock Index,Shenzhen Component Index and Securitization rate.The other conclusions drawn from our findings was five micro factor have significant influence and explanatory power on the company P/E ratio.The five micro factors are ROE(return on equity),industry average P/E ratio,P/B(price-to-book),expense ratio and Tobin's Q ratio.From the results of regression analysis,the most significant influencing micro factors are ROE and P/B.The empirical results also found that,on the whole,the influences of micro factors on the company P/E ratio before and after the reform of non-tradable shares did not show significantly different characteristics.Finally,we made some explanations for the influencing factors that are inconsistent with our theoretical assumptions and made some policy recommendation.