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An emerging market perspective on peer group selection based on valuation fundamentals

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  • Soon Nel
  • Wilna Bruwer
  • Niel le Roux

Abstract

The developed market literature suggests that peer group selection based on a careful selection of valuation fundamentals may improve the valuation accuracy of multiples. However, the literature does not offer an emerging market perspective in this regard. In this article the valuation performances of 16 equity multiples are investigated, based on three individual valuation fundamentals and three different combinations of these valuation fundamentals. The valuation performance of these 16 multiples is assessed in the equity valuation of South African companies listed on the JSE Securities Exchange over the period 2001 to 2010. The empirical results revealed, among other findings, that peer group selection based on a careful selection of valuation fundamentals could, on average, increase valuation accuracy of multiples by as much as 37.88%.

Suggested Citation

  • Soon Nel & Wilna Bruwer & Niel le Roux, 2014. "An emerging market perspective on peer group selection based on valuation fundamentals," Applied Financial Economics, Taylor & Francis Journals, vol. 24(9), pages 621-637, May.
    • Handle: RePEc:taf:apfiec:v:24:y:2014:i:9:p:621-637
    DOI: 10.1080/09603107.2014.894629
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    Cited by:

    1. Waleed Khalid & Kashif Ur Rehman & Muhammad Kashif, 2019. "The Impact of Merger and Acquisition Firms on Stock Market Bubble," Global Regional Review, Humanity Only, vol. 4(1), pages 335-342, March.
    2. Frank Asche & Bård Misund, 2016. "Who’s a major? A novel approach to peer group selection: Empirical evidence from oil and gas companies," Cogent Economics & Finance, Taylor & Francis Journals, vol. 4(1), pages 1264538-126, December.
    3. WS Nel, 2015. "An Optimal Peer Group Selection Strategy for Multiples-Based Modelling in the South African Equity Market," Journal of Economics and Behavioral Studies, AMH International, vol. 7(3), pages 30-46.
    4. Veronika Staňková & Miloš Mařík, 2020. "Selecting a peer group of companies for valuation and outline of future research using machine learning [K problému výběru porovnatelné skupiny podniků pro ocenění a nástin budoucího výzkumu s využ," Oceňování, Prague University of Economics and Business, vol. 13(3-4), pages 51-64.

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