A New Model between Stock Valuation Index and Volatility of Stock Price

Abstract

Evaluation index are long been thought as very accurately reflect stock price by people in China. In this paper, we build theory models to study the relationship between volume, P/B (Price-to-Book value Ratio), P/S (Price-to-Sale Ratio) and P/CF (Price-to-Cash Flow Ratio) and stock market volatility. In current China stock market, individual stock price volatility is a complicated function. The resulting stock price function has four variables as input: volume, PB, PS, PC. In this paper, we present a new mathematical model to simulate stock price volatility. We applied the new model to a stock through empirical analysis. Our conclusions are as follows: (1) The volatility of stock price is a function of parameters of PB, PS and PC. (2) Our new model can predict future stock price changes. (3) PB, PS and PC has positive effect on stock price. Moreover, this paper proposed some potential methods and system suggestions for the further improvement of stock price pridiction in China stock market. Overal, the empirical analysis results show that the new model can enhance the volatility forecasting ability of individual stock in china stock market.