Company Key Ratios as Explanators of Returns in NASDAQ OMX Helsinki
Mäki, Risto Sakari (2020-08-20)
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi-fe2020082061211
https://urn.fi/URN:NBN:fi-fe2020082061211
Tiivistelmä
As investors have will to attain profits as big as possible there have been generated numerous
strategies. Value investing is one of the most famous and widely known investment strategies.
The strategy incorporates investing in stocks that are favorably priced in respect to their
fundamental value.
The purpose of this study is to investigate how the value investing strategy has performed and
can the commonly applied key ratios, price-to-earnings and price-to-book, as a criterion to derive stocks into value portfolios explain the returns in Finnish stock exchange NASDAQ OMX
Helsinki during the time period from 2011 until 2019. In addition to pure numerical approach to
value investing, behavioural finance viewpoint is taken to consideration as it is pointed out by
previous studies that it plays a key role when choices about investing are made.
The companies included in this study were first divided into three categories. 25% of stocks with
the lowest (highest) key ratios were bought to value (growth) portfolio and the remaining 50% is
left out as they can be viewed neutral stocks. The descriptive analysis shows that value portfolios
compiled using P/E ratio has outperformed comparably formed growth portfolio. For the P/B
ratio results are opposite. Statistical analysis of explanatory power of these key ratios in relation
to returns is examined using OLS regression and the results show that for stock returns in
NASDAQ OMX Helsinki their explanatory power is weak.
strategies. Value investing is one of the most famous and widely known investment strategies.
The strategy incorporates investing in stocks that are favorably priced in respect to their
fundamental value.
The purpose of this study is to investigate how the value investing strategy has performed and
can the commonly applied key ratios, price-to-earnings and price-to-book, as a criterion to derive stocks into value portfolios explain the returns in Finnish stock exchange NASDAQ OMX
Helsinki during the time period from 2011 until 2019. In addition to pure numerical approach to
value investing, behavioural finance viewpoint is taken to consideration as it is pointed out by
previous studies that it plays a key role when choices about investing are made.
The companies included in this study were first divided into three categories. 25% of stocks with
the lowest (highest) key ratios were bought to value (growth) portfolio and the remaining 50% is
left out as they can be viewed neutral stocks. The descriptive analysis shows that value portfolios
compiled using P/E ratio has outperformed comparably formed growth portfolio. For the P/B
ratio results are opposite. Statistical analysis of explanatory power of these key ratios in relation
to returns is examined using OLS regression and the results show that for stock returns in
NASDAQ OMX Helsinki their explanatory power is weak.