Theory Research of Value Investing Based on Market Position

Abstract

This paper divides the net assets of a company into net operating assets (Equity) and net financial assets on the basis of Ohlson residual income model. Under the assumption that excess surplus income can only be generated from the net operating assets, the account of unearned revenue is selected as an efficient indicator reflecting a company’s market position and a new model of value investing theory is built based on market position. Moreover, statistics of Chinese capital market from 2003 to 2011 are used to conduct an empirical analysis to test the adjusted theoretical model. The results show that unearned revenue would significantly affect corporations’ equity value as an indicator reflecting its market position. However, an extreme value appears in its influence curve which performs as an inverted U shape. Overall, adjusted model of value investing theory built in this paper has important theoretical and practical significance in improving the development of China's capital market.