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Alfavärdens stabilitet - En undersökning om alfavärdens hållbarhet över en längre tidsperiod

Bjöörn, Laila LU and Karlsson, Linn LU (2014) NEKH01 20141
Department of Economics
Abstract
This study aims to contribute to solving the mystery associated with smart investment strategies. It seems impossible to find an extraordinary investment strategy that can outperform the usual returns on the market. Including 116 stocks from Stockholmsbörsens large and mid cap, this study examines if alpha values are stable over time, and if so an investment in a portfolio based on high alpha values could give a greater return than market index and preferably a greater return than expected, considering the risk taken. For the main purpose, to analyze whether or not alpha values are stable over time, we calculated Spearman’s rank correlation coefficient for the first week of 2003 and every week to come for the remaining ten year study... (More)
This study aims to contribute to solving the mystery associated with smart investment strategies. It seems impossible to find an extraordinary investment strategy that can outperform the usual returns on the market. Including 116 stocks from Stockholmsbörsens large and mid cap, this study examines if alpha values are stable over time, and if so an investment in a portfolio based on high alpha values could give a greater return than market index and preferably a greater return than expected, considering the risk taken. For the main purpose, to analyze whether or not alpha values are stable over time, we calculated Spearman’s rank correlation coefficient for the first week of 2003 and every week to come for the remaining ten year study period (in total 520 weeks). This resulted in approximately 5.6 percent of the correlations to be significant. In addition to this result we found that a portfolio based on high alpha values, each week repositioned to consist of those ten stocks with the highest alpha values during the previous period, do not outperform market index. This implies that, even if alpha values would be stable over time, investing in a portfolio based on historically high alpha values would not be profitable; on the contrary, our results showed that these portfolios even performed worse than the market index. The bottom line is that alpha values are not stable over time and that portfolios based on high alpha values do not outperform market index, thus it seems better to invest in a passive investment strategy according to our outcomes. (Less)
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author
Bjöörn, Laila LU and Karlsson, Linn LU
supervisor
organization
course
NEKH01 20141
year
type
M2 - Bachelor Degree
subject
keywords
alpha, stable alpha, security characteristic line, the efficient market hypothesis
language
Swedish
id
4612613
date added to LUP
2014-09-22 14:05:06
date last changed
2014-09-22 14:05:06
@misc{4612613,
  abstract     = {This study aims to contribute to solving the mystery associated with smart investment strategies. It seems impossible to find an extraordinary investment strategy that can outperform the usual returns on the market. Including 116 stocks from Stockholmsbörsens large and mid cap, this study examines if alpha values are stable over time, and if so an investment in a portfolio based on high alpha values could give a greater return than market index and preferably a greater return than expected, considering the risk taken. For the main purpose, to analyze whether or not alpha values are stable over time, we calculated Spearman’s rank correlation coefficient for the first week of 2003 and every week to come for the remaining ten year study period (in total 520 weeks). This resulted in approximately 5.6 percent of the correlations to be significant. In addition to this result we found that a portfolio based on high alpha values, each week repositioned to consist of those ten stocks with the highest alpha values during the previous period, do not outperform market index. This implies that, even if alpha values would be stable over time, investing in a portfolio based on historically high alpha values would not be profitable; on the contrary, our results showed that these portfolios even performed worse than the market index. The bottom line is that alpha values are not stable over time and that portfolios based on high alpha values do not outperform market index, thus it seems better to invest in a passive investment strategy according to our outcomes.},
  author       = {Bjöörn, Laila and Karlsson, Linn},
  keyword      = {alpha,stable alpha,security characteristic line,the efficient market hypothesis},
  language     = {swe},
  note         = {Student Paper},
  title        = {Alfavärdens stabilitet - En undersökning om alfavärdens hållbarhet över en längre tidsperiod},
  year         = {2014},
}