FINANCIAL MODELLING

Financial Modelling

Financial Modelling

Introduction

The study related to the Goodvalue which particularly focuses in identifying how the historical factors explain the future performance of firms on the stock exchange. Moreover, the

Goodvalue has been following the value investment strategies which are based on characteristics of the firms. In this context, the value investment strategies of Goodvalue are known in practice, but the explanatory power of variables of the companies has been questioned after the crisis. In this context, it is crucial and imperative to know factors affecting the future performance of the firms.

Research Questions

- Does market capitalization affects stock return?

- Does market capitalization affects beta of the assets?

- Does market capitalization affects dividend yield of the stocks?

- Does market capitalization affects price to earnings ratio of the stocks?

Hypothesis

H 1: There is a relationship between market capitalization and monthly stock return for a chosen period.

H 2: There is a relationship between market capitalization and beta of assets.

H 3: There is a relationship between market capitalizations with the annual dividend payments divided by market capitalization.

H 4: There is a relationship between market capitalization and market value divided by annual earnings that is the price to earnings ratio.

Variables

The variables that are used in the study are mentioned below;

Return = Monthly stock return for a chosen period

Beta = Asset's beta: for the analysis in this assignment considers that beta is an observable variable

MC =Market capitalization: 1 small cap shares; 2 medium cap shares; 3 large cap shares

Div Yield = Dividend yield: annual dividend payments divided by market capitalization

P/E ratio = Price-to-earnings ratio: market value divided by annual earnings

The above bar chart is showing the return of the companies. From the chart, it can be observed that most of the return of the companies is high. Moreover, the mean return is 0.05 with the standard deviation of 0.225.

From the above graphical representation, the market capitalization: 1 small cap shares; 2 medium cap shares; 3 large cap shares can be observed. From the chart, it can be observed that most of the market capitalization of the companies is high. Moreover, the mean market capitalization is 2.1 with the standard deviation of 0.702.

From the above graphical representation, the beta of the assets can be observed. From the chart, it can be observed that most of the beta of the assets of the companies is also high. Moreover, the mean beta of the assets is 1.15 with the standard deviation of 0.203.

The above bar chart is showing the annual dividend payments divided by market capitalization of the companies. From the chart, it can be observed that most of the dividend yield of the companies is low. Besides it, the mean annual dividend payments divided by market capitalization is 1.26 with the standard deviation of 1.377.

The above chart is reflecting the market value divided by annual earnings of the companies. From the chart, it can be observed that most of the price to earnings ratio of the companies is low. Besides it, the mean market value divided by annual earnings is ...