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Contribution Details
Type | Bachelor's Thesis |
Scope | Discipline-based scholarship |
Title | Factor Models during financially turbulent Times |
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Institution | University of Zurich |
Faculty | Faculty of Business, Economics and Informatics |
Date | 2023 |
Abstract Text | This bachelor’s thesis presents an examination of factors, such as the factors introduced by Fama and French (2014), as well as Carhart (1997). Additional factors are built using financial ratios. The research is done on US stocks from 1990 to 2021. The factor’s ability to explain asset returns is observed by doing two simple linear regressions. To visualize interrelations, a correlation matrix is analyzed. From the factors that are already established in existing literature, the excess market return, profitability, investment and momentum factors are good at explaining returns. Besides, factors built using one of these ratios have a significant influence: Price to earnings, free cash flow to operating cash flow, or interest coverage. Further, a factor model is constructed based on financially turbulent times. That is, taking the factors that had the best performance during drawdowns. When conducting a multi-linear regression and a test by Gibbons et al. (1989), it appears that this multi-factor model does not capture the expected returns accurately, therefore it is not using its full potential efficiency. This shows that when constructing a new factor model, the criteria for the factor choice should be extended. |
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