Revising and Refining Equity Valuation Models for Sensex Stocks in Indian Stock Market – An Empirical Analysis using Machine Learning Approach

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Nitha.K.P, Dr S Sivakumari, Dr Suraj E S

Abstract

Valuation models used in the stock market is prone to valuation errors. The focus of this paper is to improve accuracy of equity valuations to earn reasonable return using three different equity valuation models. It investigates the significance of three equity valuation models such as Price to Earnings Model, Price to Book Value Model and CAPM based on the valuation precision of Sensex stocks; then revises these three equity valuation models; and refines the same by using machine learning approach to improve their valuation accuracy. A sample of 30 companies that were included in the BSE sensitive index (Sensex) was selected for the study. Valuation accuracy of Sensex stocks were improved by revising and refining the Price to Earnings Model, Price to Book Value Model and CAPM using the machine learning Approach. It was found that all these Models after revision and refinement avoids unprofitable investments of investors and managers in Indian stock market

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