An Empirical Analysis of the Intrinsic Value of China's Listed Financial Companies: 2006-2010

Abstract

This paper is based on Olson's residual income model to evaluate the intrinsic value of China's listed companies in financial sector from 2006 to 2010 and carry on an empirical analysis of the existence of bubbles and bubble level if there are. This analysis is intended for providing empirical evidence for making rational investment decisions in stocks of China's financial sector. The empirical results show that the intrinsic value of stocks of China's listed companies in finance and insurance sector from 2006 to 2010 remained relatively stable, while there were frequent sharp fluctuations in the stock price, which deviated hugely from its itrinstic value. What's more, there were more bubbles in the market. And the bubble peaked in the fourth quarter of 2007. But in the long run, short-term stock market bubble (irrational boom) will eventually burst. Most of time, China's stock market is characterized by rational bubbles (bubble degree is minor), the rest of time by rational bubbles (bubble degree is great).