Size and Book-to-Market Effects in the German Stock Market, 2005-2009
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Diploma Thesis from the year 2010 in the subject Business economics - Banking, Stock Exchanges, Insurance, Accounting, grade: 2,0, Humboldt-University of Berlin (Institut für Bank- und Börsenwesen), language: English, abstract: One important goal of this study is to find out, whether the most recent data also shows the same tendency as earlier studies of the German market: A very low relation between beta and average stock returns A higher relationship between size and average stock returns An even higher relation between B/M ratio and average stock returns. In many studies the methodology u...
Diploma Thesis from the year 2010 in the subject Business economics - Banking, Stock Exchanges, Insurance, Accounting, grade: 2,0, Humboldt-University of Berlin (Institut für Bank- und Börsenwesen), language: English, abstract: One important goal of this study is to find out, whether the most recent data also shows the same tendency as earlier studies of the German market: A very low relation between beta and average stock returns A higher relationship between size and average stock returns An even higher relation between B/M ratio and average stock returns. In many studies the methodology used to test for the relationship between beta, size, B/M ratio, and stock returns are cross-sectional regressions and two-sorted portfolios. In this study, more weight is put on the ability to predict stock returns by testing these characteristics alone. Usually researchers are interested in the statistical relationship between the characteristics and stock returns. In contrast to this approach, which is especially reasonable for long-term series, this study will focus on the problems with the data and methodology of "anomaly" studies, and will discuss the different economic reasons respective to beta, size, and B/M effects in stock returns. Most of the published studies use long-term series of longer than 30 years, where the stock market returns are quite stable and only small shocks are included.This thesis is organized as follows: In section 2, findings and economic interpretations in the literature about beta, size and B/M, are discussed. The first findings, especially about size and B/M, are briefly reconsidered and recent developments are presented and further discussed. Section 3 describes the data used for the empirical study and discusses the specialties of the data preparation used, when testing for size and B/M effects. The methodologies and results are then presented in section 4. Concluding remarks are found in section 5.
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