Usefulness of multi-criteria taxonomy in comparative valuation of stocks – the polish experience
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Welc_Sobczak_Usefulness_of_multi_criteria_taxonomy.pdf (378.28 KB)
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Date
2015
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Melandrium
Abstract
One of the most relevant issues in comparative valuation of stocks is a selection of so-called “peers”, i.e. companies which may be considered similar to the one which is valued (where similarity means similar profitability, expected growth and investment risk). When applying comparative valuation techniques analysts usually deem firms from the same industry to be similar and comparable. However, one of the alternative and more objective approaches to selecting comparables is based on a statistical multi-criteria analysis, where those firms are considered comparable which share similar operating and financial features, regardless of their industrial classifications. In our paper we empirically examine the usefulness of taxonomy-based approach in identifying “peers” for comparative valuation, on the basis of data from the Polish stock market for 2003-2013. We found that in our sample “peer-based” stock portfolios were unable to “beat” the portfolios formed on the ground of raw multiples (where no any inter-company differences in fundamentals are taken into consideration).
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Welc, J., & Sobczak, E. (2015). Usefulness of multi-criteria taxonomy in comparative valuation of stocks – the polish experience. W T. Loster & T. Pavelka, T. Loster & T. Pavelka (Red.), The 9th International Days of Statistics and Economics. Conference Proceedings (ss. 1784–1793). MELANDRIUM