Study On Value Investment Based On The Extraordinary Income Comparison Of Value Stocks And Growth Stocks

With the completion of the equity division reform of China’s stock market, thevarious reform measures supporting progressive, increasingly standardized andcomprehensive market supervision, the idea of investors changed dramatically.Irrational speculative philosophy gradually withdraw from the China’s market, valueinvestment theory arising from the West has become more popular, but after a bigsuccess of the super bull market in2006and completely annihilated of the2008bearmarket, Chinese investors’ attitude on the value investment theory started wandering. Insuch a context, the article intends to study the performance of the value investmenttheory in China’s securities market and discuss the effectiveness of value investment inthe Chinese market will have important theoretical and practical significance.With the discussion of the value investment theory feasibility, this paper try to testthe performance of the value investment theory from theory and empirical in China’ssecurities market. On the theoretical side, the paper starting from the concept of valueinvestment in the second chapter, in-depth analyses the theoretical essence, at the sametime, it also analyses the definition and classification standards of value stocks andgrowth stocks; at last, the third chapter combined the value investment with thebackground of China’s securities market to explore the developed opportunity for thevalue investment in China’s securities market. In the empirical analysis, fundamentalanalysis as the entry point, the fourth chapter has made three validations. Firstly,through studying the relationship between stock price and intrinsic value, the paperanalyses the applicability of fundamental analysis in China’s securities market as aninvestment analysis tool. Secondly, the paper contrasts the abnormal returns betweenvalue stocks portfolio and growth stocks portfolio, then analyses the marketperformance of the value investment. At last, the paper tries to explain theextraordinary gains of value stocks portfolio on the premise of extraordinary gainsdetermination of value stocks portfolio.The paper concludes that: in theoretical aspect, as the equity division reform laidthe foundation of the market infrastructure of value investment, with the gradualimprovement of regulatory system in China’s securities market, the value investmenttheory can totally satisfy the needs of China’s current securities market; in empiricalside, intrinsic value represented by fundamentals already has the ability to explain stockprice, the intrinsic value become the basis support of the stock price, the suitability offundamental analysis gradually be sure. Then, extraordinary gains of value stocks were higher than the growth stock portfolio based on the indicators of B/M and E/Pindicators, value stocks have obvious advantages in a bull market, but in a bear market,the performance of growth stocks and value stocks almost have no differences. Themedium-and long-term profitability of value stocks are particularly evident, so in theoverall market, the performance of value stocks is better than the combination ofgrowth stocks. Finally, about empirical analysis of extraordinary gains source of valuestocks, the conclusions support the overreaction hypothesis, refused the risk changehypothesis.