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Kan den magiska formeln bli ännu mer magisk?

Cederholm, Sixten LU and Cederholm, Wilfred LU (2023) NEKH02 20231
Department of Economics
Abstract
According to efficient market theory, all publicly available information is reflected in asset prices. In its semi-strong form, fundamental analysis cannot be used as a method to generate an abnormal return. Implying that abnormal return can only be achieved by incurring a higher level of risk. Joel Greenblatt (2006) shows that by applying simple fundamental analysis and ranking companies based on EBIT-yield and return on capital performance, an excess return in relation to the American stock market can be generated. This study aims to investigate whether a modified version of Greenblatt’s Magic Formula, with the addition of the financial ratio operating margin, can generate a risk-adjusted return on the Swedish stock market during the... (More)
According to efficient market theory, all publicly available information is reflected in asset prices. In its semi-strong form, fundamental analysis cannot be used as a method to generate an abnormal return. Implying that abnormal return can only be achieved by incurring a higher level of risk. Joel Greenblatt (2006) shows that by applying simple fundamental analysis and ranking companies based on EBIT-yield and return on capital performance, an excess return in relation to the American stock market can be generated. This study aims to investigate whether a modified version of Greenblatt’s Magic Formula, with the addition of the financial ratio operating margin, can generate a risk-adjusted return on the Swedish stock market during the period 2013-2023. The results show that the modified portfolio generates a risk-adjusted excess return of 8.7% annually compared to the OMXS30 index. This implies that fundamental analysis can be used to generate a higher risk-adjusted return on the Swedish market and adds to the existing debate regarding market efficiency. The study also shows that by adding the financial ratio operating margin, the investment strategy is improved. (Less)
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author
Cederholm, Sixten LU and Cederholm, Wilfred LU
supervisor
organization
course
NEKH02 20231
year
type
M2 - Bachelor Degree
subject
keywords
Magic Formula, Market Efficiency, Fundamental Analysis, Abnormal Returns Swedish Stock Market.
language
Swedish
id
9127982
date added to LUP
2024-01-22 15:43:10
date last changed
2024-01-22 15:43:10
@misc{9127982,
  abstract     = {{According to efficient market theory, all publicly available information is reflected in asset prices. In its semi-strong form, fundamental analysis cannot be used as a method to generate an abnormal return. Implying that abnormal return can only be achieved by incurring a higher level of risk. Joel Greenblatt (2006) shows that by applying simple fundamental analysis and ranking companies based on EBIT-yield and return on capital performance, an excess return in relation to the American stock market can be generated. This study aims to investigate whether a modified version of Greenblatt’s Magic Formula, with the addition of the financial ratio operating margin, can generate a risk-adjusted return on the Swedish stock market during the period 2013-2023. The results show that the modified portfolio generates a risk-adjusted excess return of 8.7% annually compared to the OMXS30 index. This implies that fundamental analysis can be used to generate a higher risk-adjusted return on the Swedish market and adds to the existing debate regarding market efficiency. The study also shows that by adding the financial ratio operating margin, the investment strategy is improved.}},
  author       = {{Cederholm, Sixten and Cederholm, Wilfred}},
  language     = {{swe}},
  note         = {{Student Paper}},
  title        = {{Kan den magiska formeln bli ännu mer magisk?}},
  year         = {{2023}},
}