Fundamental analysis of stocks by two-stage DEA

✍ Scribed by Cristina Abad; Sten A. Thore; Joaquina Laffarga

• Book ID: 102505590
• Publisher: John Wiley and Sons
• Year: 2004
• Tongue: English
• Weight: 147 KB
• Volume: 25
• Category: Article
• ISSN: 0143-6570
• DOI: 10.1002/mde.1145

✦ Synopsis

Abstract

Fundamental analysis of stocks links financial data to firm value in two consecutive steps: a predictive information link tying current financial data to future earnings, and a valuation link tying future earnings to firm value. At each step, a large number of causal factors have to be factored into the evaluation. To effect these calculations, we propose a new two‐stage multi‐criteria procedure, drawing on the techniques of data envelopment analysis. At each stage, a piecewise linear efficiency frontier is fitted to the observed data. The procedure is illustrated by a numerical example, analyzing some 30 stocks in the Spanish manufacturing industry in the years 1991–1996. Copyright © 2004 John Wiley & Sons, Ltd.