PRICE EARNINGS RATIO (PER) MODEL CONSISTENCY: EVIDENCE FROM JAKARTA STOCK EXCHANGE
Abstract
Recently, stock valuation model using the earning multiplier approach (PER) is more popular among investors and analysts. This popularity has caused this model to seem to be the most perfect model among other valuation models. In response to the fact above, this research tries to
give empirical evidence whether PER’s cross-sectional model can be used in determining the fairness of stock price traded in Jakarta Stock Exchange.
Evaluation of the capability of PER’s cross-sectional model in determining the common stock price was conducted by developing three regression models from different time periods, namely the years of 1995, 1996, and 1997. The regression models used in this research was the one developed by Whitbeck-Kisor (1973). The model employed growth, dividend payout ratio (DPR), and standard deviation of growth (s-growth) as independent variable.
This research was intended to test the consistency of the model in assessing stock prices. The result of this research showed that each model developed at different time periods, though with the same sample and method, gave different results. The differences were in the significance level and in the weight of influence of independent variables to the corresponding dependent variables. As a stock valuation model, a regression model should perform consistently from period to period, so normal
PER of a stock could be predicted based on the model that was developed by historical data.
References
Bing, R. 1971. Survey of practioners' stock evaluation methods. Financial Analysts Journal (27) 3: 55-69,
Brigham, F. E., and L. C. Gapenski. 1996. Intermediate Financial Management. Orlando: The Dryden Press.
Chandra, Y. 1994. Price Earning Ratio Sebagai Penilaian Kewajaran Harga Saham di BEJ. Thesis (unpublished). Yogyakarta: Faculty ofr Economics, Gadjah Mada University.
Cohen, J., E. Zinbarg, and A. Zeikel. 1973. Investment Analysis and Portfolio Management. Homewood, Ill.; Richard D. Irwin.
Cooper, D. R., and C. W. Emory. 1995. Business Research Methods Ed. 5. Chicago: Richard D. Irwin.
Eaton, L. 1993. Price/Earning ratios. Barron's (October 18): M18-M22.
ECFIN. 1993. Indonesian Capital Market Directory 1993. Jakarta.
ECFIN. 1995. Indonesian Capital Market Directory 1995. Jakarta.
ECFIN. 1998. Indonesian Capital Market Directory 1998. Jakarta.
Elton, E. J., and M. J. Gruber. 1995. Modern Portfolio Theory and Investment Analysis (ed. 5). New York: John Wiley and Sons.
Fairfield, P.M. 1994. P/E, P/B and present value of future dividend. Financial Analysts Journal (50) 4: 22-31.
Foster, G. 1986. Financial Statement Analysis (2nd ed.). New York: Prentice Hall International Inc.
Gruber, M. 1971. The Determinants of Common Stock Prices. Pennsylvania: Pennsilvania State University.
Hartono, J., and D. Ratnaningsih. 1997. An information usefulness reason in reporting EPS figures. Kelola Gadjah Mada University Business Review (VI) 15: 117-132.
Huang, S. C., and M. R. Randall. 1987. Investment Analysis and Management (2nd. ed.). Allyn & Bacon Inc.
Jakarta Stock Exchange. 1996. JSX Statistic 1995.
JSX Statistic 1996. Jakarta.
Jakarta Stock Exchange. 1998. JSX Statistic 1997. Jakarta.
Jones, C.P. 1996. Investment Analysis and Management (5th ed.). New York: John Wiley & Sons Inc.
Katoppo, A. et al. 1997. Pasar Modal Indonesia: restropeksi Lima Tahun Swastanisasi BEJ, Jakarta: Pustaka Sinar Harapan.
Mpaata, K. A., and A. Sartono. 1997. Factor determining price-earnings (P/E) ratio. Kelola Gadjah Mada University Business Review (VI) 15: 133-150.
Munir, M. 1997. Analysis Faktor yang Mempengaruhi PER Saham-saham di Bursa Efek Jakarta. Thesis. Yogyakarta: Master of Management, Gadjah Mada University.
Whitbeck, V., and M. Kisor. 1963. A new tool in investment decision making. Financial Analysts Journal (May-Jun): 55-62.
Gadjah Mada International Journal of Business by Master of Business Administration, Faculty Economics and Business, Universitas Gadjah Mada is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
