Examining the role of sales growth factors and financial crisis index in predicting stock returns

Dissertation for Master's degree

Direction: Accounting

Abstract:

The capital asset pricing model shows a balance relationship between risk and the expected return rate of securities. This model claims that investors expect to be rewarded or paid only for accepting systematic risk. Recent empirical research has faced serious challenges to this model, and it seems that beta as a systematic risk indicator has lost the ability to describe the relationship between risk and return in long-term periods. Meanwhile, other variables such as sales growth and financial crisis index have been proposed as risk substitutes. Sales growth indicators and financial crisis index are among the indicators that have the ability to evaluate the ability to repay debts and the profitability of the business unit. Therefore, this research intends to review the existing literature and by using simple linear regression and multivariate with a sample of 107 companies during the period of 1382-1386 to investigate the effect of two factors of sales growth and the financial crisis index in predicting the stock returns of companies listed on the Tehran Stock Exchange. According to the linear regression tests, the research results indicate that the combination of sales growth factors and the financial crisis index lacks the necessary explanatory power in explaining the stock returns of the companies under study. b) They say. In other words, beta is a measure that shows the sensitivity of a stock's return to the market return. The capital asset pricing model is one of the stock return forecasting models that has been used for many years. In this model, it is assumed that investors can only earn additional returns by bearing additional risk. In this model, if the investor's goal is to get a higher return than the market return, he bears a higher risk than the market risk. The beta coefficient in this model has the necessary ability to predict stock returns, and one of the important factors for deciding whether to buy and sell a company's shares is to predict the company's stock returns. rtl;"> In the financial literature, it is called beta (b) systematic risk measure. In other words, beta is a measure that shows the sensitivity of a stock's return to the market return. The capital asset pricing model is one of the stock return forecasting models that has been used for many years. In this model, it is assumed that investors can only earn additional returns by bearing additional risk. In this model, if the investor's goal is to get a higher return than the market return, he bears a higher risk than the market risk. The beta coefficient in this model has the necessary ability to predict stock returns, and one of the important factors for deciding whether to buy or sell a company's shares is to predict the company's stock returns.

Many researchers believe that the capital asset pricing model is the right model and is related to returns in the real world, and to some extent, the initial experimental evidence has confirmed this theory to some extent. On the other hand, the empirical evidence of recent years and the studies conducted in many countries have made this theory face important challenges, so it is claimed that beta as a systematic risk index has lost the ability to describe the relationship between risk and return in long-term periods. Meanwhile, other variables such as sales growth and financial crisis index also affect stock returns and may be better alternatives than beta. Therefore, these variables that are not explained by this model are often mentioned as stock return exceptions.

Sales growth is one of the indicators for evaluating the company's activity. The continuous growth of the company's sales revenue and profit leads to the fact that the market considers less risk for the company.On the other hand, the financial crisis index is one of the desirable indicators to evaluate the solvency and liquidity of companies, which can be used to predict the financial crisis of companies and inform investors, creditors and company employees about the loss of control in the company. In this research, the following matters are taken into consideration.

Chapter 1: Generalities of the research:

In this chapter, according to the topic of the research, the reason for dealing with this topic in the form of the necessity and objectives of the research has been briefly discussed, and at the end, the key words and terms are defined. :

In this chapter, in different sections, the literature is described and the explanations of researchers regarding the capital asset pricing model, the concepts of return and risk, stock return exceptions, and bankruptcy prediction models are discussed. At first, the research hypotheses, society, statistical sample, how to collect data, and then the method of testing hypotheses are mentioned, and then the definition of independent and dependent variables is stated.

Chapter 4 Data analysis:

In this chapter, it is pointed out how to classify information and analyze them through the use of statistical model methods, and the results of hypothesis testing are presented and analyzed. and analysis is done.

Chapter 5 Research results and suggestions:

In this chapter, which is actually the final part of this research, the final summary of the obtained results is presented, and in fact the fate of the hypotheses (rejection or proof) is determined and suggestions for future research are presented. At the end, there is a list of Persian and Latin sources and sources, including books, publications, and articles, along with appendices related to the research, including basic data, tables, and statistical analysis. Stock returns have been made in the capital market. In other words, there are other variables that are more likely to explain the volatility of stock returns than beta (systematic risk index). The results of his investigations led to the introduction of the company size effect. In recent years, two variables of company size and share ratio have been used together. Fama and French in 1992 show that these two variables, together with the market factor, explain average returns. Also, in 1993, Fama and French presented the effect of company size and the ratio of book value to the market value of equity as two risk factors that were ignored in the capital asset pricing model. The research of Fama and French in 1996 also showed that the acquisition of abnormal returns is influenced by variables such as the price-to-earnings ratio, the ratio of book value to the stock market value, the ratio of cash flow to the stock price, and the growth rate of past sales. In his research, Wang, 2001, also examined sales growth and financial crisis index using S & P 500 data during the period of 1988-1998 and using time series regressions.    The results of his research indicated that these two factors exist in the US market. Although the explanatory power of these two variables in describing stock returns was insignificant compared to the effect of company size and the ratio of book value to the market value of Fama and French's equity. Specific or idiosyncratic risk dose does not deserve a risk premium. Recent empirical studies have raised serious challenges to this belief. It appears that as a measure of systematic risk, it has little power in explaining cross sessional risk and return relationships over long periods of time, while other variables such as firm size and book to market ratio, appear to be more useful risk proxies.