Comparison Of Relative Valuation Efficiency Of Stock Market

The stock market of mainland China has made great progress in the breadth and depth since it once been established,but there are still a series of problems,especially in the aspect of market valuation efficiency.Based on the comparison with Hong Kong stock market,this paper tries to analyze the current valuation efficiency of mainland China stock market,find out its changing trend and possible influencing factors,and put forward some suggestions to improve it.Compared with P/E ratio and the method based on Efficiency Market Hypothesis,this paper put forward a method based on cross-listed stocks and DEA from the perspective of absolute and relative pricing.The relative valuation efficiency of stock market is measured in two dimensions: average relative valuation efficiency of all stocks in market and the difference of their relative valuation efficiency.DEA-Malmquist index and DEA-Tobit regression model are used to analyze the dynamic change and influencing factors of relative valuation efficiency of stock market.By analyzing the A+H cross-listed stocks from 2002 to 2013,we find that there is a strong co-movement between mainland China and Hong Kong stock markets.The relative valuation efficiency gap between the two stock markets continues to be narrowed.Mainland China stock market is still a strong speculative capital driven market,while Hong Kong stock market is a relatively mature market where stock funds play a key role.Full circulation reform significantly promoted the valuation efficiency of mainland stock market,while financial crisis had adverse effects on both of the two stock markets.P/E ratio overestimates the valuation efficiency of the two stock markets,so relative valuation efficiency based on the DEA model is more valuable.By qualitatively analyzing the situation of mainland stock market,we find that the defect of market institution and information disclosure,the irrational investor structure and their irrational investment behavior are main reasons why the market relative valuation efficiency is low.It can be improved by reforming the distribution and trading system,reforming themarket information disclosure system,changing the investor structure and the behavior of them.