Valuing equity securities using fundamental analysis: Evidence from international stock markets
DOI:
https://doi.org/10.20525/ijrbs.v12i6.2644Keywords:
Fundamental analysis, Value drivers, Stock markets, Earnings yield, Price earnings ratio, Book valueAbstract
To date, there are many myths surrounding security selection and fundamental analysis due to the notion that all available information is perfectly priced in security. However, fundamental analysis is still very useful in determining the financial health of security, which is much needed for long-term investing. The aim of this study was to perform a valuation analysis of international stock markets so as to recommend buy or sell signals suitable for investment decisions. This study made use of the coefficients of a multiple regression analysis and value drivers for the S&P 500, Nasdaq, JSE, DAX, Nikkei 225, BIST 100, FTSE, and SSE as of January 23, 2023. The findings revealed that the JSE, DAX, Nikkei 225, and FTSE are undervalued, which translates to a buy signal, while the S&P 500, Nasdaq, BIST 100, and SSE are overvalued. These findings imply that investing in the JSE, DAX, Nikkei 225, and FTSE will produce decent capital gains on a risk-adjusted basis.
Downloads
References
Ali, K.E.S. (2014). Fundamental Analysis and Relative Valuation Multiples: A Determination of Value Drivers and Development of a Value Model for the US and UK Markets. Unpublished doctoral dissertation, University of Portsmouth.
Athanassakos, G. (2009). Value versus Growth Stock Returns and the Value Premium: The Canadian Experience 1985–2005. Canadian Journal of Administrative Sciences, 26, 109–121. DOI: https://doi.org/10.1002/cjas.93
Bentes, S.R., & Navas, R. (2013). The Fundamental Analysis: An Overview. Int. J Latest Trends Fin. Eco. Sc, 13(1), 389-393.
Bevanda, L.M., & Arnaut – Berilo, A.Z.A. (2021). Performance of Value and Growth Stocks in the Aftermath of the Global Financial Crisis. Business Systems Research, 12(2), 268-283. DOI: https://doi.org/10.2478/bsrj-2021-0032
Chen, N., & Zhang, F. (1998). Risk and Return of Value Stocks. The Journal of Business, 71(4), 501–535. https://doi.org/10.1086/209755. DOI: https://doi.org/10.1086/209755
Daniswara, H.P., & W. M. Daryanto .(2019). Earnings per share (eps), price book value (PBV), return on asset (ROA), return on equity (ROE), and Indeks Harga Saham Gabungan (IHSG) effect on stock return. South East Asia Journal of Contemporary Business, Economics and Law, 20(1),11-27.
Enow, S. T. (2023). Investigating causality and market contagion during periods of financial distress and its implications. Journal of Accounting, finance, and Auditing Studies, 9(1), 140-153. DOI: https://doi.org/10.32602/jafas.2023.006
Enow, S.T. (2023). Modelling Stock Market Prices Using the Open, High and Closes Prices. Evidence from International Financial Markets. International Journal of Business and Economic Sciences Applied Research, 15(3), 52-59. DOI: https://doi.org/10.25103/ijbesar.153.04
Enow, S.T. (2022). Investigating The Weekend Anomaly and Its Implications: Evidence from International Financial Markets. Journal of Accounting, Finance and Auditing studies, 8(4), 322-333. DOI: https://doi.org/10.32602/jafas.2022.039
Eriksson, P., Forsberg, T., & Gustavsson, N. (2011). Fundamental Stock Analysis. A study of the fundamental analysis for practical use at the Swedish Stock Exchange. Unpublished bachelor’s dissertation, University of Jonkoping.
Fama, E., & French, K. (1992). The Cross-section of Expected Stock Returns. Journal of Finance, 47, 427 – 465. DOI: https://doi.org/10.1111/j.1540-6261.1992.tb04398.x
Fama, E., & French, K. (2000). Forecasting Profitability and Earnings. The Journal of Business, 73(2), 161-175. DOI: https://doi.org/10.1086/209638
Herawati, A., & Putra, A. (2018). The Influence of Fundamental Analysis on Stock Prices: The Case of Food and Beverage Industries. European Research Studies Journal, 21(3), 316-326. DOI: https://doi.org/10.35808/ersj/1063
Jeong, J., Lee, Y., & Mukherji, S. (2009). Do Dow Stocks Offer a Value Premium? The Journal of Wealth Management, 12(3):95-103. DOI: https://doi.org/10.3905/jwm.2009.12.3.095
Muhammad, S. (2018). The Relationship Between Fundamental Analysis and Stock Returns Based on the Panel Data Analysis; Evidence from Karachi Stock exchange (KSE). Research Journal of Finance and Accounting, 9(3),84-96.
Piotroski, J. D. (2000). Value Investing: The Use of Historical Financial Statement Information to Separate Winners from Losers. Journal of Accounting Research, 38, 1–41. https://doi.org/10.2307/2672906. DOI: https://doi.org/10.2307/2672906
Piotroski, J. D., & So, E. C. (2012). Identifying Expectation Errors in Value/Glamour Strategies: A Fundamental Analysis Approach. The Review of Financial Studies, 25(9), 2841–2875. http://www.jstor.org/stable/23263573. DOI: https://doi.org/10.1093/rfs/hhs061
Rosenberg, B., Reid, K., & Lanstein, R. (1985). Persuasive Evidence of Market Inefficiency. Journal of Portfolio Management, 11:18-28. DOI: https://doi.org/10.3905/jpm.1985.409007
Sharma, L., Patil, P., & Choudhari, S. (2021). Fundamental & Technical Analysis of Stock for Beginners. International Journal of Innovative Science and Research Technology, 6(5), 1334 – 1339.
Suzana, B., Sinisa, B., & Zoran, I. (2013). Strategy of stock valuation by fundamental analysis. Skopje, 4(1),45-51.
Tabot, E.S. (2022). Fundamental analysis from value drivers: the case of banking, industrial, consumer goods, healthcare and tech firms listed on the Johannesburg stock exchange. Academy of Accounting and Financial Studies Journal, 26(4), 1-11.
Wafia, A.S., Hassana, H., & Mabrouka, A. (2015). Fundamental Analysis Models in Financial Markets – Review Study. Procedia Economics and Finance, 30, 939 – 947 DOI: https://doi.org/10.1016/S2212-5671(15)01344-1
Ying, Q., Tahir, Y., Qurat, U.A., Yasmeen, A., & Shahid, R.M. (2019). Stock investment and excess returns: A critical review in the light of the efficient market hypothesis. Journal of Risk and Financial Management, 12(2), 1-22. DOI: https://doi.org/10.3390/jrfm12020097
Zhang, L. (2005). The Value Premium. The Journal of Finance, 60(1), 67–103. http://www.jstor.org/stable/3694834 DOI: https://doi.org/10.1111/j.1540-6261.2005.00725.x
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2023 Samuel Tabot Enow
This work is licensed under a Creative Commons Attribution 4.0 International License.
For all articles published in IJRBS, copyright is retained by the authors. Articles are licensed under an open access Creative Commons CC BY 4.0 license, meaning that anyone may download and read the paper for free. In addition, the article may be reused and quoted provided that the original published version is cited. These conditions allow for maximum use and exposure of the work, while ensuring that the authors receive proper credit.
