Market-based valuation
Encyclopedia
Market-based valuation is a form of stock valuation
that refers to market indicators, also called "extrinsic" criteria (i.e., not related to economic fundamentals and account data, which are "intrinsic" criteria).
is the most characteristic market-based method, although it focuses more on timing than pricing.
Also, rough market comparison tools such as the PE ratio and the PEG ratio
are used.
More sophisticated forms of analysis (fundamental analysis
, quantitative analysis and behavioral analysis
) use also some market criteria, such as
Those criteria might be "tilted" in some valuation models in order to anticipate their possible variation in the next future or to adapt them to their historical statistical range or mean
Stock valuation
In financial markets, stock valuation is the method of calculating theoretical values of companies and their stocks. The main use of these methods is to predict future market prices, or more generally potential market prices, and thus to profit from price movement – stocks that are judged...
that refers to market indicators, also called "extrinsic" criteria (i.e., not related to economic fundamentals and account data, which are "intrinsic" criteria).
Examples of market valuation methods
Technical analysisTechnical analysis
In finance, technical analysis is security analysis discipline for forecasting the direction of prices through the study of past market data, primarily price and volume. Behavioral economics and quantitative analysis incorporate technical analysis, which being an aspect of active management stands...
is the most characteristic market-based method, although it focuses more on timing than pricing.
Also, rough market comparison tools such as the PE ratio and the PEG ratio
PEG ratio
The PEG ratio is a valuation metric for determining the relative trade-off between the price of a stock, the earnings generated per share , and the company's expected growth....
are used.
More sophisticated forms of analysis (fundamental analysis
Fundamental analysis
Fundamental analysis of a business involves analyzing its financial statements and health, its management and competitive advantages, and its competitors and markets. When applied to futures and forex, it focuses on the overall state of the economy, interest rates, production, earnings, and...
, quantitative analysis and behavioral analysis
Behavioral finance
Behavioral economics and its related area of study, behavioral finance, use social, cognitive and emotional factors in understanding the economic decisions of individuals and institutions performing economic functions, including consumers, borrowers and investors, and their effects on market...
) use also some market criteria, such as
- the risk premiumRisk premiumA risk premium is the minimum amount of money by which the expected return on a risky asset must exceed the known return on a risk-free asset, in order to induce an individual to hold the risky asset rather than the risk-free asset...
, - the beta coefficientBeta coefficientIn finance, the Beta of a stock or portfolio is a number describing the relation of its returns with those of the financial market as a whole.An asset has a Beta of zero if its returns change independently of changes in the market's returns...
,
Those criteria might be "tilted" in some valuation models in order to anticipate their possible variation in the next future or to adapt them to their historical statistical range or mean
Mean
In statistics, mean has two related meanings:* the arithmetic mean .* the expected value of a random variable, which is also called the population mean....