Abstract
We empirically analyze the divergence rate of share price from company fundamentals at the regional level. We use data from industrial companies publicly listed worldwide for the period 2004–2013. Based on ISO country codes, approximately 8,000 companies are divided into four regions: America, Asia, Europe, and the rest of the world. Following Kaizoji and Miyano (Stock market crash of 2008: an empirical study of the deviation of share prices from company fundamentals, Working paper, 2016b, arXiv:1607.03205: https://arxiv.org/abs/1607.03205), we develop a panel regression model for share price in which share price is the dependent variable and dividends per share, cash flow per share, and book value per share are explanatory variables. We identify the two-way fixed effects model as the best model for all four regions. To estimate individual company fundamentals for each year, we remove the time fixed effects from the theoretical value, that is, the fitted value in the regression model. We find that share prices significantly differ from company fundamentals in the years 2006 to 2008 in all regions, although the divergence rate differs by region.
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Notes
- 1.
We use the EViews software package to estimate the model. The two-way random effects model was unavailable since we use unbalanced panel data.
- 2.
Wooldridge and Jeffrey (2010, p. 299) proposes a method that uses residuals from pooled OLS and checks the existence of serial correlations.
- 3.
R 2 for the world model is 0.97, though detailed results are not reported here.
- 4.
The region shown in Table 12.3, (Asia)(in parenthesis), is for the case in which observations identified as outliers are excluded from the regression model.
- 5.
This behavior is the same as the case eliminating the outliers in the Asia data.
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This research was supported by JSPS KAKENHI Grant Number 2538404, 2628089.
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Miyano, M., Kaizoji, T. (2017). The Divergence Rate of Share Price from Company Fundamentals: An Empirical Study at the Regional Level. In: Aruka, Y., Kirman, A. (eds) Economic Foundations for Social Complexity Science. Evolutionary Economics and Social Complexity Science, vol 9. Springer, Singapore. https://doi.org/10.1007/978-981-10-5705-2_12
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