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Contribution Details

Type Master's Thesis
Scope Discipline-based scholarship
Title Economic Cycles and Value Investing
Organization Unit
  • Remo Kyburz
  • Thorsten Hens
  • Nilufer Caliskan
  • English
Institution University of Zurich
Faculty Faculty of Economics, Business Administration and Information Technology
Number of Pages 77
Date February 2016
Zusammenfassung The thesis is split into seven chapters and each chapter examines a different area. Chapters one and two provide an introduction into the topic of value investing and discuss the theoretical foun-dations of value investing and business cycles research. These two chapters mark the theory sec-tion and are based on some of the famous research papers in the field of value investing including the contributions of Fama and French (1992, 1993, 1995, 1998, 2007), Lakonishok, Shleifer and Vishny (1994), and Zhang (2005). Chapter 3 presents the data used in the analysis. The thesis includes time-series return data for value and growth portfolios of nineteen countries for the time period of 1975 until 2014. The examined countries are all part of the EAFE-region plus the United States and Canada. Value and growth portfolios are formed according to four popular sorting methods that use ratios of fundamentals-to-price. These sorting methods are the book-to-market, earnings-to-price, cash flow-to-price, and dividend-to-price ratios. The pre-constructed portfolio returns are obtained from the Kenneth R. French database. In addition, the analysis requires a set of economic indicators that are connected to the business cycle. Hence, the thesis uses numerous economic variables, including a country-specific composite leading indicator (CLI), a business confidence indicator (BCI), a consumer confidence indicator (CCI), the gross domestic product growth (GDP), and industrial production growth to predict value returns. The time-series data for the economic indicators are provided by the OECD. Chapter four presents the methodology, which is going to be applied in chapter five where the analysis is performed. By applying statistical methods, the researcher evaluates the performance of value and growth portfolios in different stages of the business cycles. The significance of the results are evaluated by means of t-tests. Furthermore, an essential part of the analysis is based on regression analysis performed to find correlations between the economic indicators and value returns. Lastly, a return prediction-model is used to make portfolio-weighting decisions for the global value portfolio. This global active value portfolio tries to outperform a global balanced value portfolio by actively reassigning country-portfolio weights every month. The entire analysis was performed in Microsoft Excel. Finally, the goals of chapter six and seven are to present and summarize the obtained findings of the thesis and to create a link to results of previous academic research. Apart from the theoretical basics presented in the beginning, a substantial part of the thesis is concerned with a quantitative analysis of value investing in the light of business cycles. As a result, the content of the thesis includes several tables and graphs that illustrate the research pro-cedure and summarize key results.
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