Empirical Research Of Value Investing On The Base Of Financial Indicators And Valuation Metrics

The concept of value investing was firstly put forward by Benjamin Graham in1934. After that, Peter lynch, Philip Fisher, and Warren Buffett put it into practice, which made it worldly famous. The effectiveness of this idea in mature capital markets had been testified by a lot of study and practice.Since the foundation of Shanghai and Shenzhen stock exchange, securities market of China only has passed for20years. The A-share market is still not mature enough, the function of resource allocation is still lacking and information asymmetry still exists. Given the immature of capital market and short history of concept in China, many people believe that the value investment strategy will not work in current securities market. But there are also some people think the openness of Chinese capital market is constantly improve, and the market supervision has been strengthened, the external environment of value investing is forming. And part of scholars has proved the effectiveness of this strategy in China’s A-share market based on some empirical data.This article believes that despite the market’s short history, it still approaching to open and mature, he government has formulate a series of policy and trading mechanism to support the capital market, which contribute to promoting the development of value investing. Given these realities, we believe that it’s meaningful to study the validity of value investment in A-share market.On the basis of existing research experience and methods, this paper takes the philosophy of value investing as the starting point and forms a two-dimensional indicators by extending the previous investment strategy based on valuation metrics, also by taking the fundamentals of listed companies into account. The data is based on2000-2013data of Shanghai and Shenzhen A-share market. We divide the sample data into groups according to the two-dimensional indicators and examine the holding period yield.The results show that the strategy of value investing is effective in China’s A-share market. The group which is based on financial indicator and valuation metrics can achieve a better yield and this yield is more significant during a long term holding.And the excess return is not to bear the risk of higher expense.