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Type Bachelor's Thesis
Scope Discipline-based scholarship
Title Swiss Stock Market: Analysis of the HML Risk Factor
Organization Unit
Authors
  • Dennis Patch
Supervisors
  • Per Nils Anders Östberg
Language
  • English
Institution University of Zurich
Faculty Faculty of Business, Economics and Informatics
Number of Pages 52
Date 2016
Abstract Text Researchers use variables which explain the variance in stock returns to study stock market behavior, develop asset pricing models, and analyze mutual fund performance. The financial industry applies such variables or risk factors in portfolio management to develop investment strategies according to their clients' (risk) preferences and investment goals (Ammann and Steiner (2008)). Fama and French (1998) and Griffin (2002) find that international risk factors are not applicable to individual countries and therefore country-specific factor analysis is most promising. As documented in this thesis, research by renowned empiricists in this field seems to mainly focus on the US stock market. It seems that much less research was done on risk factors in other countries. An in-depth analysis of the HML (high minus low) risk factor mimicking portfolio in the Swiss stock market, conducted in this study, attempts to fill this gap. Switzerland has one of the 15 largest stock exchanges in the world in terms of market capitalization1 and displays some unique characteristics. Swiss stock market indices such as the Swiss Performance Index (SPI) are dominated by a small number of disproportionally large firms in terms of market capitalization. In August 2016 the three largest firms accounted for 46% of the total market capitalization of the SPI, which currently comprises 207 companies2. Moreover, Switzerland is a small, yet strong and stable open economy in Europe and is not part of the European Union. Switzerland-specific market research is interesting since banking and investing are internationally recognized Swiss specialties. Finding statistical evidence on a positive return on the HML portfolio (value premium) in such a large stock market would further strengthen Fama and French's (1998) claim that the value premium persists around the world. Additionally, it might encourage future research in this field.
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