How to Spot Investment Opportunities in China’s A-shares with Regression Analysis
In July this year, I was studying Prof. Dharmadharan's valuation course, and one of the models that is slightly simpler than DCF is multiple linear regression, which has also been confirmed to be true and usable in the Chinese A-share market. This model is simply to use a basket of stocks, such as (bank etf) of various indicators, to find out the linear relationship between the independent variable and multiple dependent variables, for example, suppose the dependent variable is PB, independent variables are PE, ROE, the bank's non-performing loan ratio. This will give us a regression equation. For example PB = a + x* PE + y ROE + z NPL ratio of banks. With this we can substitute PE, ROE, NPL ratio of individual stocks to get a predicted PB, if the predicted PB is lower than the current PB then it means currently undervalued. Below I will combine python code, and Prof. Dharmadharan's course, together with a detailed look at this method. You are also welcome to discuss wit...