Stock-Valuation--And-Ris课件(PPT 41页)

1、11Stock Valuation And Risk第1页，共41页。Chapter ObjectivesExplain the general steps necessary to value stocks and the commonly used valuation models and learn the factors that affect stock pricesExplain methods of determining the required rate of return on stocksLearn how to measure the risk of stocksLea

2、rn how to measure performance of stockExplain the concept of stock market efficiency第2页，共41页。1. Stock Valuation MethodsThe price of a share of stock is the total value of the company divided by the number of shares outstandingStock price by itself doesnt represent firm valueNumber of shares outstand

3、ingStock price is determined by the demand and supply for the sharesInvestors try to value stocks and purchase those that are perceived to be undervalued by the marketNew information creates re-evaluation第3页，共41页。1.1 Stock Valuation MethodsApply the mean PE ratio of publicly traded competitorsUse ex

4、pected earnings rather than historicalEquation:Price-Earnings (PE) MethodFirmsStock = Expected EPS Mean industry PE ratioPrice第4页，共41页。1.1 Stock Valuation MethodsPrice Earnings (PE) The P/E ratio (price-to-earnings ratio) of a stock (also called its earnings multiple, or simply multiple, P/E, or PE)

5、 is a measure of the price paid for a share relative to the annual income or profit earned by the firm per share P/E ratio=Price per share/ Annual Earning per share PE是指股票的本益比，称为市盈率,也称为“利润收益率”。本益比是某种股票普通股每股市价与每股盈利的比率。 一般来说，市盈率水平为: 0-13 即价值被低估, 14-20 即正常水平 21-28 即价值被高估 28+ 反映股市出现投机性泡沫 第5页，共41页。1.1 St

6、ock Valuation MethodsReasons for different valuationsDifferent earnings forecastsDifferent PE multipliersDifferent comparison or benchmark firmsLimitations of the PE methodErrors in forecast or industry compositeBased on PE, which some analysts questionPrice-Earnings (PE) Method第6页，共41页。1.2 Stock Va

7、luation MethodsThe price of a stock reflects the present value of the stocks future dividendst = periodDt = dividend in period tk = discount rateDividend Discount Method第7页，共41页。1.2 Stock Valuation MethodsConstant-growth dividend discount model-dividends are not expected to remain constant forever,

8、it can be expected to grow at a constant rate P=D(1+g)/k-g=D/k-g where g is rate at which dividends are expected to grow 第8页，共41页。1.2 Stock Valuation MethodsRelationship between DDM and PE Ratio for valuing firmsPE multiple is influenced by required rate of return of competitors and their expected g

9、rowth rateWhen using PE multiple method, the investor implicitly assumes that k and g will be similar to competitorsDividend Discount Method第9页，共41页。1.2 Stock Valuation MethodsRelationship between DDM and PE Ratio for valuing firmsThe inverse relationship between required rate of return and value ex

10、ists when applying either the PE ratio or the DDM There is positive relationship between a firms growth rate and its value when applying either method第10页，共41页。1.2 Stock Valuation MethodsLimitations of the Dividend Discount ModelPotential errors in estimating dividendsPotential errors in estimating

11、growth ratePotential errors in estimating required returnNot all firms pay dividendsTechnology firmsBiomedical firmsDividend Discount Method第11页，共41页。1.2 Stock Valuation MethodsAdjusting the Dividend Discount ModelValue of stock is determined byPresent value of dividends over investment horizonPrese

12、nt value of selling price at the endTo forecast the selling price, the investor can estimate the firms EPS in the year they plan to sell, then multiply by the industry PE ratioDividend Discount Method第12页，共41页。2.1 Determining the Required Rate of Return to Value StocksCapital Asset Pricing Model (CA

13、PM)Used to estimate the required return on publicly traded stockAssumes that the only relevant risk is systematic (market) riskUses beta to measure risk rather than standard deviation of returns Rj = Rf + j(Rm Rf)第13页，共41页。2.1 Determining the Required Rate of Return to Value Stocks Rj = Rf + j(Rm Rf

14、)Capital Asset Pricing Model (CAPM)Estimating the risk-free rate and the market risk premiumProxy for risk-free rate is the yield on newly issued Treasury bondsThe market risk premium, or (Rm-Rf), can be estimated using a long-term average of historical data.第14页，共41页。2.1 Determining the Required Ra

15、te of Return to Value StocksRj = Rf + j(Rm Rf)Estimating the firms betaBeta measures systematic riskReflects how sensitive individual stocks returns are relative to the overall marketExample: beta of 1.2 indicates that the stocks return is 20% more volatile than the overall marketInvestor can look u

16、p beta in a variety of sources such as Value Line or Yahoo! Finance (Profile)Computed by regressing stocks returns on returns of the market, usually represented by the S&P 500 index or other market proxy第15页，共41页。2.1 Determining the Required Rate of Return to Value StocksLimitation of Capital Asset

17、Pricing Model (CAPM) Based on the suggestion that the return of stock is positively related to its betaPositive relation between stock return and betaCannot only use beta to determine which stock investment is feasible when market is expected perform well第16页，共41页。2.2 Determining the Required Rate o

18、f Return to Value StocksArbitrage Pricing ModelDiffers from CAPM in that it suggests a stocks price is influenced by a set of factors rather than just the return on the marketFactors may include things like:Economic growthInflationIndustry effectsProblem with APT: factors are unspecified and must be

19、 defined第17页，共41页。TranslationArbitrage pricing theory in finance, is a general theory of asset pricing, that has become influential in the pricing of shares. APT holds that the expected return of a financial asset can be modeled as a linear function of various macro-economic factors or theoretical m

20、arket indices, where sensitivity to changes in each factor is represented by a factor-specific beta coefficient . The model-derived rate of return will then be used to price the asset correctly - the asset price should equal the expected end of period price discounted at the rate implied by model. I

21、f the price diverges, arbitrage should bring it back into line.第18页，共41页。TranslationThe APT along with the CAPM is one of two influential theories on asset pricing. The APT differs from the CAPM in that it is less restrictive in its assumptions. It allows for an explanatory (as opposed to statistica

22、l) model of asset returns. It assumes that each investor will hold a unique portfolio with its own particular array of betas, as opposed to the identical market portfolio. In some ways, the CAPM can be considered a special case of the APT in that the securities market line represents a single-factor

23、 model of the asset price, where Beta is exposed to changes in value of the Market.第19页，共41页。TranslationAdditionally, the APT can be seen as a supply side model, since its beta coefficients reflect the sensitivity of the underlying asset to economic factors. Thus, factor shocks would cause structura

24、l changes in the assets expected return, or in the case of stocks, in the firms profitability.第20页，共41页。TranslationOn the other side, the capital asset pricing model is considered a demand side model. Its results, although similar to those in the APT, arise from a maximization problem of each invest

25、ors utility function, and from the resulting market equilibrium (investors are considered to be the consumers of the assets).第21页，共41页。3.1 Factors that Affect Stock PricesEconomic factorsInterest ratesMost of the significant stock market declines occurred when interest rates increased substantiallyM

26、arkets rise in 1990s: low interest rates; low required rates of returnExchange ratesForeign investors purchase U.S. stocks when dollar is weak or expected to appreciateStock prices of U.S. companies also affected by exchange rates第22页，共41页。3.1 Factors that Affect Stock PricesMarket-related factorsJa

27、nuary effectNoise tradingTrading by uninformed investors pushes stock price away from fundamental valueMarket maker spreadsTrendsTechnical analysisRepetitive patterns of price movements第23页，共41页。3.1 Factors that Affect Stock PricesFirm-specific factorsExpected +NPV investmentsDividend policy changes

28、Significant debt level changesStock offerings and repurchasesEarnings surprisesAcquisitions and divestitures第24页，共41页。3.1 Factors that Affect Stock PricesIntegration of factors affecting stock pricesEvidence on factors affecting stock pricesFundamental factors influence stock prices, but they do not

29、 fully account for price movementsSmart-money investorsNoise traders Excess volatilityIndicators of future stock pricesThings that affects cash flows and required returnsVariance in opinions about indicators第25页，共41页。Exhibit 11.3aInternationalEconomicConditionsU.S.FiscalPolicyIndustryConditionsFirms

30、SystematicRisk(Beta)ExpectedCash Flowsto BeGeneratedby theFirmRequired Returnby InvestorsWho Invest inthe FirmFirm-SpecificConditionsU.S.MonetaryPolicyU.S.EconomicConditionsStock MarketConditionsMarketRiskPremiumFirmsRiskPremiumRisk-FreeInterestRatePrice of theFirmsStock第26页，共41页。3.2 Analysts and St

31、ock ValuationStock analysts interpret “valuation effect” of new information for investorsAnalysts opinions impact stock buying/sellingAnalysts ratings seldom recommend sellIncome of analyst may come from investment banking side of business selling company sharesCompanies shun analysts who recommend

32、“sell”Analyst may personally own shares of company第27页，共41页。3.2 Analysts and Stock Valuation, cont.Analyst may obtain “new” information with company executives in conference callOther investors are not privy to informationRegulation FD (Fair Disclosure) from SEC requires “release” of new significant

33、 information at the same time as teleconference calls with analysts.Other analyst recommendationsValue LineInvestors Business Daily第28页，共41页。4.1 Measures of Stock RiskMarket price volatility of stockIndicates a range of possible returnsPositive and negativeStandard deviation measure of variabilityVo

34、latility of a stock portfolio depends upon:Volatility of individual stocks in the portfolioCorrelation coefficients between stock returnsProportion of total funds invested in each stock第29页，共41页。4.1 Measures of Stock RiskBeta of a stockMeasures sensitivity of stocks returns to markets returnsBeta of

35、 a stock portfolioWeighted average of the betas of the stocks that comprise the portfoliop = wi i 第30页，共41页。4.1 Measures of Stock RiskValue at RiskEstimates the largest expected loss to a particular investment position for a specified confidence levelWarns investors about the potential maximum loss

36、that they may incur with their investment portfolioFocuses on the “loss” side of possible returnsUsed to analyze risk of a portfolio第31页，共41页。4.2 Applying Value at RiskMethods of determining the maximum expected lossUse of historical returnsExample: count the percent of total days that a stock drops

37、 a certain levelUse of standard deviationUsed to derive boundaries for a specific confidence levelUse of betaUsed in conjunction with a forecast of a maximum market dropBeta serves as a multiplier of the expected market loss第32页，共41页。4.2 Applying Value at RiskDeriving the maximum dollar lossApply th

38、e maximum percentage loss to the value of the investmentCommon adjustments to the value-at-risk applicationsInvestment horizon desiredLength of historical period usedTime-varying riskRestructuring the investment portfolio第33页，共41页。4.3 Forecasting Stock Price Volatility and BetaMethods of forecasting

39、 stock price volatilityHistorical methodTime-series methodImplied standard deviationDerived from the stock option pricing modelForecasting a stock portfolios volatilityOne method involves forecasts of individual volatility levels and using correlation coefficientsForecasting a stock portfolios betaF

40、orecast changes in individual stock betas第34页，共41页。4.3 Stock Performance MeasurementSharpe IndexAssumes total variability is the appropriate measure of riskA measure of reward relative to risk第35页，共41页。4.3 Stock Performance MeasurementTreynor IndexAssumes that beta is the appropriate type of riskMea

41、sure of risk-adjusted returnHigher the value; the higher the return relative to the risk-free rate第36页，共41页。4.4 Stock Market Forms of EfficiencyWeak-form efficiencySecurity prices reflect all historical price and volume informationImplication: investors cannot earn abnormal returns based on past price movementsSemistrong-form efficiencySec