Comparing relative valuation efficiency between two stock markets

Abstract

How to compare the valuation efficiency between two stock markets? In the perspective of input-output, relative valuation and multi-factors, a DEA model that can be used to evaluate the relative valuation efficiency of two stock markets based oncross-listed stock samples was constructed. A DEA-Malmquist model was also constructed to analyze the their valuation efficiency changes. We analyzed the valuation efficiency of mainland China and Hong Kong stock markets based on A+H cross-listed stocks from 2002 to 2013. The results were compared using the model we constructed andusing the P/E ratio. It shows that as an emerging stock market, mainland stock market is still immature and needs more development. There is a linkage between the two stock markets and their valuation efficiency is influenced by similar environmental factors. The government intervention in mainland stock marketcan effectively improve market relative valuation efficiency. Compared with the P/E ratio, the DEA model is more comprehensive and can match the actual circumstances better.