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Magic Formula Investing and The Swedish Stock Market

In English

Författare

  • Oskar Strömberg
  • Oscar Gustavsson

Summary, in English

The purpose of this paper is to contribute to the existing research within the subject of the Magic Formula. The investment strategy will be tested on historical data for companies on the Stockholm stock exchange during the period 2007-04-01 to 2017-03-31. The return will be benchmarked against OMXS30 as an indicator of the market return. In addition to comparisons between the return of the Magic Formula and the market return, risk involved in the investments has also been considered through the use of the Sharpe ratio, CAPM and Fama and French’s Three-Factor Model. The Magic Formula portfolio had an average yearly return of 21,25 %, compared to the market return of 5,22 %. Considering the taken risk, the Magic Formula had a Sharpe ratio of 0,769, which was higher than the market 0,146. Furthermore, the CAPM and Three-Factor Model analyses showed a significant excess return of the Magic Formula which could not be explained by risk, company size or value factors.

Publiceringsår

2018

Språk

Engelska

Dokumenttyp

Examensarbete för kandidatexamen

Ämne

  • Business and Economics

Nyckelord

  • Magic Formula
  • Efficient Market Hypothesis
  • Fama and French three-factor model
  • CAPM
  • Swedish stock market

Handledare

  • Hans Byström