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Managerial Finance Emerald Article: Individual stock market risk and price valuation: the case of Titan S.A.

Managerial Finance

Managerial Finance Emerald Article: Individual stock market risk and price valuation: the case of Titan S.A.

Emerald Article: Individual stock market risk and price valuation: the case of Titan S.A.

Paraschos Maniatis

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Paraschos Maniatis, (2011),"Individual stock market risk and price valuation: the case of Titan S.A.", Managerial Finance, Vol. 37 Iss: 4 pp. 347 - 361

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Individual stock market risk and price valuation: the case of Titan S.A.

Paraschos Maniatis

Stock market risk and price valuation

347

Department of Business Administration, Athens University of Economics and Business, Athens, Greece and Kuwait-Maastricht Business School, Salmiya, Kuwait

Abstract

Purpose – The purpose of this study is twofold: to test the hypothesis that the closing prices of Titan S.A. stock can be approximated by a random walk; and to valuate the risk associated to this stock. The first question is equivalent to the efficient market hypothesis (EMH) and, therefore, to the predictability of stock’s closing price. The second question follows the first in a natural way, since stock’s predictability and risk are in an inverse relationship.

Design/methodology/approach – The paper investigates the existence of unit roots in the stock and in all stock index, in the lines of Dicky-Fuller modeling. It then investigates the stock’s risk focusing the interest in the behavior of the time series volatility under the hypothesis that they can be described by an autoregressive scheme. Finally, it looks at the relationship between stock returns and market returns in the lines of the market model.

Findings – The study concludes that although the predictability of the stock returns is impossible, the risk associated with the stock can to some extent be statistically rationalised.

Originality/value – The paper’s value lies in looking into the probability that if the EMH is even approximately true, accepting above-average risks is the only way to obtain better-than-average returns.

Keywords Stock markets, Financial risk, Stock returns, Greece Paper type Case study

1. Literature review

The efficient market hypothesis, risk and risk measures

The efficient market hypothesis. What the efficient market hypothesis (EMH) is concerned with is under what conditions an investor can earn excess returns in a stock. In every day terms, the EMH is the claim that all information available is already reflected in the price of the stock.

This statement in the EMH context is equivalent to the statement that the stock’s closing price P t is a random walk. And since the best forecast for the tomorrow’s price in a

random walk is today’s price ðforecast P tþ1 ¼ E½P tþ1 =P t ; P t21 ;

...P

1 all known ¼ P t Þ,

it results that all past information is useless. The origin of the modern finance stochastic is Bachelier’s (1990) work who claimed in his thesis “The´ orie de la Speculation”, that the logged closing prices lnP t of a stock constitute a time series in which lnP t -lnP t2 1 (which Bachelier defines as the share’s returns) are stationary independent increments, normally distributed with zero mean and finite variance. In the finance literature, the EMH and the Bachelier’s claims are lumped together and collectively labeled random walk theories (RWT), which come in three different versions:

The current issue and full text archive of this journal is available at www.emeraldinsight.com/0307-4358.htm Individual stock

Managerial Finance Vol. 37 No. 4, 2011 pp. 347-361 q Emerald Group Publishing Limited

0307-4358

DOI 10.1108/03074351111115304

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(1)

The weak RWT. No technical analysis trading system based on price data alone can ever outperform the market. The weak version of RWT is just Bachelier’s claim that one cannot create information about tomorrow’s prices from looking at what happened in the past.

(2) The semi-strong RWT. No trading scheme based on any publicly available
348 information will be able to outperform the market. According to semi-strong

RWT, not only is technical analysis useless, fundamentals are too. However, the

semi-strong version applies only to publicly available information of the sort one can see in the financial releases of the companies or listening to governmental pronouncements. All such publicly available information has already been taken into account in setting the current price of the stock. But perhaps there is still hope for a winning portfolio-selection strategy by employing insider sources of information. For this case one has.

(3) The strong RWT. No trading scheme based upon any information sources whatsoever can outperform the market. Thus, the strong version claims that no matter where one gets information, it will prove useless in the long-term in obtaining better than market average increment results.

These ideas come with assumptions, either explicit, like Bachelier’s statistical

properties, or implicit, like the EMH’s inherent assumptions about the pricing mechanisms and rationality on the part of investors. There is, however, something inherently paradoxical about the EMH. On the one hand, the EMH claims that is useless to gather information; it will do no better at all in the development of a trading strategy that will outperform the market. On the other hand, the EMH claims that all available information has already been incorporated into the price of the stock. But how can this happen if no one gathers information? In order for the EMH to be valid, there must be a sufficiently large number of traders who do not believe

it. So it can be true if the traders do not think it is true

[...].

Further, if the EMH is even

approximately true, then it should be impossible to make consistently better-than-average returns. Yet, the empirical evidence clearly indicates otherwise; stock exchange markets in all over the world exhibit such better results. How can this fact be reconciled with consistently better results? The answer is probably that better results can only be obtained by accepting above-average risks. Risk measured by volatility. If the random walk hypothesis is true, it would appear that one cannot really study stock prices in any empirical sense. After all, the aim of most empirical research is to use explanatory variables to explain the variation in a dependent variable. In the present case, the behavior of stock prices cannot be explained empirically other than to say that their changes are inherently unpredictable. What is then the interest in the investigation of stock price behavior? One answer is that one can try to explain the volatility of stock prices. In particular, to investigate whether volatility changes over time in any particular way. In stock markets, volatility is related to risk. That is, if a stock is highly volatile then its price can increase quite substantially, but it can also decrease substantially. An investor interesting in purchasing such a volatile stock might make large gains if the price rises substantially, but could also make losses if it drops. This argument suggests that volatility is a measure of the riskiness of a stock. However, one has to be careful in equating volatility with risk.

Financial models (e.g. the capital asset, capital pricing model, CAPM or the market model) emphasize that the riskiness of a portfolio of stocks depends not only on the volatility of the individual stocks, but also on the correlation between the stocks in the portfolio: consider a portfolio of two stocks that are both very volatile but are also perfectly negatively correlated with one another. The negative correlation suggests that whenever one stock drops in value, the other one rises. So even though each stock is individually risky (due to the high volatility), the risks cancel each other out, and overall the portfolio is quite safe. While the volatility of stocks is an important aspect in an investment decision, there is another aspect that is also important, namely, how the market risk affects the stock’s risk. This question is approached by the market model. Risk measured by the market model. The rationale behind the market model is to relate the returns of an individual stock to the market risk. The tool for this purpose is to regress the stock’s returns to the market returns as measured by the all stocks index and to analyze the stock variation to a part explained by the regression and to a residual not explained part. Strictly speaking the market model investigates the stock’s returns as a function of the market returns. But in finance, the returns are inherently connected with risk. Interrogation on returns means interrogation on risk.

Stock market risk and price valuation

349

2. Data, symbols and computation details

In our investigation, we have considered the daily closing prices of the firm’s common stock for the year 2003. Although, there exists much more recent data, we have for obvious reasons chosen as investigation year the year 2003, which is remote from the present situation of the stock. The stock’s closing prices are paired to the closing prices of all stocks general index for the same dates. The data covers the period 2 January 2003 through 31 December 2003, which defines a time series with 247 daily observations. We have used the following symbols for all performed analyses:

P t

closing price of Titan stock in day t:

DP t ¼ P t 2 P t21

VP t

stock’s volatility in day t defined as the squared deviation of lnðP t =P t21 Þ from

the mean of the terms lnðP t =P t21 Þ, t ¼ 2; 3;

...

; 247:

RP t ¼

P t 2 P t21 P t21

the stock returns

in

day

t

M t

closing price of all stock index (market index) stock in day t:

DM t ¼ M t 2 M t21

VM t

market’s volatility in day t defined as the squared deviation of lnðM t =M t21 Þ

from the mean of the terms lnðM t =M t21 Þ, t ¼ 2; 3;

...

; 247:

RM t ¼

M t 2 M t21

M

t21

the stock returns

in

day

t:

MF

37,4

For all figures and calculations, we have used the STATISTICA program. The original data and the calculation details are shown in the appropriate STATISTICA files, appended to this text. However, for convenience reasons, we have embedded the main results in the text.

3. Statistical analysis

  • 350 The statistical analysis includes investigation of unit roots existence in the time series,

risk valuation applying volatility analysis of the time series and risk valuation on the base of the market model.

3.1 Testing for unit roots in the stock and the market

Figure A1 shows in adjusted scaling the closing prices of the stock and market index. The two-time series exhibit a remote but clear similarity in cycles and a rather opposite trend. The similarity in the cyclical movements implies that both time series follow more or less the same market behavior. This conclusion is supported by the spectral analysis of the time series. Figures A2 and A3 show the results of spectral analysis of the time series, after trend elimination and mean extraction. The periodograms of the stock and market exhibit common cycles of duration approximately 60, 120 and 240 days. Therefore, regardless of the opposite trends the series seem to move in the same variation pattern. However, each series considered individually does not exhibit the form of a stationary time series, since the time mean of the series changes with the time. The most of the econometric studies of the stock (and financial in general) time series contain a unit root – i.e. they exhibit behavior of a random walk. The consequences of the existence of unit root are fatal in relation to the possibility of forecast the future values of the stock. In order to give evidence to this anticipation, we check the hypothesis of existence of unit roots in the series considering them as a random walk. The analysis relates to the effective markets hypothesis, since under this hypothesis the closing prices is a random walk and the best prediction for the stock is its last realized value. Therefore, the testing of the hypothesis is reduced to testing whether the time series is a random walk or not. In the following, we test the hypothesis that the time series of the stock and all stock indexes are random walks (with or without drift). For this purpose, we apply the Dickey-Fuller unit root test. According to the formulation of the unit root tests, the models to be tested are:

 

DP t ¼

d þ bP t21 þ 1 t

ð1Þ

and:

 

DM t ¼ d þ bM t21 þ 1 t

ð2Þ

The term 1 t in the models is a random variable (residuals) with zero mean and constant variance. The regressions results are shown in Tables I and II. Testing the values of the b estimates in the above regressions according to the testing scheme H 0 : b ¼ 0 against the alternative H 1 : b , 0 at level of significance 5 percent, the unit root hypothesis cannot be discarded t ¼ 2 2.84690 . 2 3.14 in model (1) and in model (2) t ¼ 2 0.135337 . 2 3.14. Hence, the time series P and M can be regarded as random walks and there is no better forecast for their closing values than their last realized values. Nevertheless, one can still have some information on the risk exposure

of the stock, investigating the stock’s volatility, in particular investigating the possibility that the volatility can be described by an autoregressive scheme.

3.2 Volatility of stock and market

Stock market risk and price valuation

Figure A4 shows the volatilities of the closing values of the stock and market. The

shape of the schedules gives some evidence that the courses of these two variables are related. Indeed, this anticipation is enforced by the regression of the stock’s volatility VP to markets volatility VM, as obtained by the model:

351

VP t ¼ a þ bVM t þ 1 t

ð3Þ

Table III shows the regression results. As shown in Table III, the relationship of the two variables is poor (adjusted R 2 ¼ 10 percent) but the regression’s parameters are significantly different to zero ( p-level ¼ 0 for intercept and slope). Hence, the stock’s volatility follows in a remote way the behavior of the markets’ volatility. However, since the scope of the study is the investigation is the stock’s predictability, it is necessary to check the stock’s (and the market’s) predictability by investigating the behavior of each variable considered as a univariate variable. For this purpose, we consider each variable as an autoregressive scheme. Figures A5-A7 show the autocorrelation and the partial autocorrelation functions for the stock’s volatility. The shape of the autocorrelation function advocates for the anticipation that the stocks volatility is a white noise. However, estimating the autoregressive scheme:

 

VP t ¼ a þ bVP t21

 

ð4Þ

 

Standard

 

Parameter

error of

Dickey-Fuller critical value for

 

Parameter

estimate

parameter

t (244)

p-level

Adj. R 2

left-hand t-test at 5 percent

Table I.

d

0.876131

0.311221

2.81514

0.005274

0.02818

2 3.14 (for 246 observ.)

Regression results for unit root test in the model

b

2 0.0533309

0.018725

2 2.84690

0.004791

DP t ¼ d þ bP t21 þ 1 t

 
 

Standard

 

Parameter

error of

Dickey-Fuller critical value for

 

Parameter

estimate

parameter

t (244)

p-level

Adj. R 2

left-hand t-test at 5 percent

Table II.

d

3.537515

11.61601

0.304538

0.760978

0.00000

2 3.14 (for 246 observ.)

Regression results for unit root test in the model

b

2 0.000815

0.00602

2 0.135337

0.892457

DM t ¼ d þ bM t21 þ 1 t

 

Parameter

Parameter estimate

Standard error of parameter

t (244)

p-level

Adj. R 2

Table III.

a

0.000153

0.000026

 

5.851587

0.000000

0.09944216

Regression results in the model

b

0.497922

0.094008

5.296565

0.000000

VP t ¼ a þ bVM t þ 1 t

MF

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352

Positive and significant values for the model parameters are obtained. The parameters’ estimation is shown in Table IV. Based on the p-level values for the model parameters, we cannot reject the hypothesis that the stock’s volatility is an AR(1) scheme. Therefore, the stock’s volatility is in some degree, within a confidence interval, predictable. For comparison reasons, we give in Table V the estimation results for the autoregressive scheme:

VM t ¼ a þ bVM t21 þ 1 t :

ð5Þ

In this model, the behavior of the market’s volatility as a white noise cannot be rejected, since the beta’s estimate is not significant at a 5 percent significance level (the estimation results are shown in Table V). It is likely that the specific cyclical character of the company’s activity renders offers to the stock’s volatility a degree of predictability, which is not enjoyed by the market’s volatility.

3.3 The market model

In this paragraph, we investigate the risk valuation based on the market model.

The market model is defined as:

RP t ¼ a þ bRM t þ 1 t

a

b

RP t ¼ ðP t 2 P t21 Þ=P t21 RM t ¼ ðM t 2 M t21 Þ=M t21

1 t

¼ intercept. ¼ slope (the beta coefficient in financial vocabulary). ¼ the returns of the individual stock in time t. ¼ the returns of the market (all stocks index) in time t. ¼ regression’s residual error in time t.

In most of times b, the estimate of b, is interpreted as the measure of risk associated to the stock in the sense that if b , 1 the stock is less responding to the market variations and more responding if b . 1. However, a better risk measure is the variance explained by the regression: if (S RP ) 2 is the total variance of the depended variable RS can be analyzed as:

ðS RP Þ 2 ¼ b 2 ðS RM Þ 2 þ ðSeÞ 2

Table IV. Parameters estimates in the autoregressive model VP t ¼ a þ bVP t21 þ 1 t

Parameter

Parameter

estimate

Asympt.

standard error

Asympt.

t (244)

p-level

Lower 95 percent conf.

Upper

  • 95 percent conf.

a

b

0.000225

0.134196

0.000027

0.063570

8.333619

2.110991

0.000000

0.035791

0.000171

0.008980

0.000278

0.259412

Table V. Parameters estimates in the autoregressive model VM t ¼ a þ bVM t21 þ 1 t

Parameter

Parameter

estimate

Asympt.

standard error

Asympt.

t (244)

p-level

Lower 95 percent conf.

Upper

  • 95 percent conf.

a

b

0.000145

2 0.029237

0.000015

0.064161

9.805888

2 0.455674

0.000000

0.649030

0.000116

2 0.155618

0.000174

0.097144

In this context, the variance b 2 (S RM ) 2 , explained by the regression, is considered to be the systematic risk of the stock, associated to the market variations, while the term (Se) 2 , the not explained part of variance by the regression, is considered as the specific risk of the stock due to its individual character. We see that b is involved again in the stock risk but it plays a different role as parameter in the risk measurement. The ratio b 2 ðS RM Þ 2 =ðS RP Þ 2 , which is the squared regression’s coefficient of determination, measures the portion of the stock’s systematic risk in the total stock’s risk. In Table VI, we read a p-level value . 0.05 for the regression’s intercept and a zero p-level value for the beta coefficient. From these values, we conclude that the intercept is not statistically significant, while the statistical significance of the beta coefficient cannot be rejected at significance level 5 percent. Further, the value of beta’s estimate (0.676685), although less than one, indicates sufficient response of the stock’s returns to the market ones. In this aspect, the risk associated to the stock, according to the financial interpretation of beta, is less than the market risk. However, much better interpretable is the systematic stock’s risk as measured by R 2 , which counts for 29.4 percent of the total stock’s risk, and the specific risk 100 2 29.4 ¼ 70.6 percent. The two measures are not contradictory, they do not measure exactly the same thing: beta measures the response of the returns to the market returns; R 2 measures the risk which can be attributed to the market risk, while 1 2 R 2 measures the risk the connected to the specific character of the stock. From this point of view, both beta coefficient and R 2 measure risk, but different kinds of risk.

Stock market risk and price valuation

353

4. Conclusions

Summarizing the findings of the analysis, we can proceed to the following conclusions:

.

.

The time series of the Titan stock is exposing the characteristics of a random walk, which discards any hope of forecasting its future closing prices, even in a confidence interval. Differing the time series one will obtain a white noise, which is cannot offer any further information. The same conclusion is valid for the all stocks time series. The above results do confirm the long experience from the stock exchange market: the market is unpredictable. If this was not the case, the speculators could systematically obtain (a few) positive profits. But this outcome has never been confirmed by the stock exchange practice and experience.

The positive value of the beta coefficient in the market model regression shows that the movements of the Titan stock follow the movements of the all stocks index. The practical meaning of this result is that the investor has to anticipate the all stocks index in order to estimate the evolution of his own stocks.

. As indicated by the value of beta coefficient the cyclical character of Titan’s activities does not substantially differentiate its returns from the market returns.

.

The Titan’s stock is exposed to a specific risk about 70 percent of the global stock’s risk.

Parameter

Parameter estimate

Standard error of parameter

t (244)

p-level

R 2

a

2 0.001110

0.000807

2 1.37584

0.170134

0.29410088

b

0.676685

0.066651

10.15259

0.000000

Table VI. Regression results in the model RP t ¼ a þ bVM t þ 1 t

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.

  • 354 .

Although, the closing prices of the stock do not offer any prediction help, the stock’s volatility can to an extent be foreseen, since its volatility can plausibly be described by an autoregressive scheme AR(1). Besides, regressing the stock’s volatility to market’s volatility, one obtains statistically significant estimates of intercept and slope, which can offer additional information for the stock’s volatility.

Given the high degree of risk in the stock, one has to reckon with increased

speculation profits in order to restore the balance higher risk/higher profits.

Reference

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Brailsford, T. (1995), “An empirical test of the effect of the return interval on conditional

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R.A.

and

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S.C.

(1991),

Principles of Corporate Finance , McGraw-Hill,

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R.

and Lee,

J. (1992),

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Stock market risk and price valuation

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355

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(The Appendix follows overleaf.)

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Appendix. STATISTICA files

356

Figure A1.

Closing prices of stock

and market index

19 2,400 P (Left) M (Right) 18 2,200 17 2,000 16 1,800 15 1,600 14 1,400
19
2,400
P (Left)
M (Right)
18
2,200
17
2,000
16
1,800
15
1,600
14
1,400
0
16
32
48
64
80
96
112
128
144
160
176
192
208
224
240

Figure A2.

Spectral analysis of stock

50 50 40 40 30 30 20 20 10 10 0 0 0 20 40 60
50
50
40
40
30
30
20
20
10
10
0
0
0
20
40
60
80
100
120
140
160
180
200
220
240
260
Period
Note: No. of cases: 246
Periodogram values
1,6e6 1,6e6 1,4e6 1,4e6 Stock market risk and price valuation 1,2e6 1,2e6 1e6 1e6 357 8e5
1,6e6
1,6e6
1,4e6
1,4e6
Stock market
risk and price
valuation
1,2e6
1,2e6
1e6
1e6
357
8e5
8e5
6e5
6e5
4e5
4e5
2e5
2e5
0
0
0
20
40
60
80
100
120
140
160
180
200
220
240
260
Figure A3.
Period
Periodogram values

Note: No. of cases: 246

Spectral analysis of market

0.0030 VP 0.0026 VM 0.0022 0.0018 0.0014 0.0010 0.0006 0.0002 Figure A4. Stock and market –0.0002
0.0030
VP
0.0026
VM
0.0022
0.0018
0.0014
0.0010
0.0006
0.0002
Figure A4.
Stock and market
–0.0002
volatilities
0
16
32
48
64
80
96
112
128
144
160
176
192
208
224
240

MF

37,4

358

Figure A5.

Autocorrelation

function VP

Lag Corr. S.E. Q p 1 +0.134 0.0634 4.48 0.0342 2 +0.077 0.0632 5.98 0.0503 3
Lag
Corr.
S.E.
Q
p
1
+0.134
0.0634
4.48
0.0342
2
+0.077
0.0632
5.98
0.0503
3
+0.004
0.0631
5.98
0.1124
4
+0.088
0.0630
7.95
0.0933
5
+0.058
0.0629
8.79
0.1177
6
+0.027
0.0627
8.97
0.1752
7
+0.061
0.0626
9.93
0.1928
8
+0.205
0.0625
20.72
0.0080
9
+0.088
0.0623
22.73
0.0068
10
+0.031
0.0622
22.97
0.0109
11
+0.045
0.0621
23.50
0.0150
12
+0.161
0.0619
30.26
0.0026
13
+0.074
0.0618
31.71
0.0027
14
+0.086
0.0617
33.67
0.0023
15
+0.013
0.0615
33.71
0.0037
–1.0
–0.5
0.0
0.5
1.0

Note: Standard errors are white-noise estimates

Figure A6.

Partial autocorrelation

function VP

Lag Corr. S.E. 1 +0.134 0.0638 2 +0.060 0.0638 3 –0.015 0.0638 4 +0.087 0.0638 5
Lag
Corr.
S.E.
1
+0.134
0.0638
2
+0.060
0.0638
3
–0.015
0.0638
4
+0.087
0.0638
5
+0.037
0.0638
6
+0.003
0.0638
7
+0.055
0.0638
8
+0.190
0.0638
9
+0.029
0.0638
10
–0.010
0.0638
11
+0.039
0.0638
12
+0.130
0.0638
13
+0.014
0.0638
14
+0.057
0.0638
15
-0.020
0.0638
–1.0
–0.5
0.0
0.5
1.0

Note: Standard errors assume AR order of k–1

0.004

0.003

0.002

0.001

0.000

–0.001

Observed Forecast ± 90.0000%
Observed
Forecast
± 90.0000%

0.004

0.003

0.002

0.001

0.000

–0.001

–20

0

20

40

60

80

100

120

140

160

180

200

220

240

260

280

Notes: Start of origin: 1; end of origin: 246

Stock market

risk and price

valuation

359

Figure A7.

Forecasts; model: (1,0,0) seasonal lag: 12 input VP

Lag

Corr.

  • 1 –0.029

  • 2 +0.030

  • 3 +0.101

  • 4 +0.046

  • 5 +0.176

  • 6 –0.010

  • 7 –0.083

  • 8 +0.176

  • 9 +0.069

  • 10 +0.008

  • 11 +0.007

  • 12 +0.069

  • 13 +0.052

  • 14 +0.043

  • 15 –0.086

S.E.

0.0634

0.0632

0.0631

0.0630

0.0629

0.0627

0.0626

0.0625

0.0623

0.0622

0.0621

0.0619

0.0618

0.0617

0.0615

0.004 0.003 0.002 0.001 0.000 –0.001 Observed Forecast ± 90.0000% 0.004 0.003 0.002 0.001 0.000 –0.001

Q

p

  • 0.21 0.6450

  • 0.44 0.8029

  • 3.00 0.3917

  • 3.54 0.4712

  • 11.40 0.0440

  • 11.43 0.0760

  • 13.20 0.0675

  • 21.17 0.0067

  • 22.41 0.0077

  • 22.43 0.0131

  • 22.44 0.0212

  • 23.70 0.0224

  • 24.42 0.0275

  • 24.90 0.0356

  • 26.84 0.0301

–1.0

–0.5

0.0

0.5

1.0

Note: Standard errors are white-noise estimates

Figure A8.

Autocorrelation

function VM

MF

37,4

360

Figure A9.

Partial autocorrelation

function VM

Lag Corr. S.E. 1 –0.029 0.0638 2 +0.029 0.0638 3 +0.103 0.0638 4 +0.052 0.0638 5
Lag
Corr.
S.E.
1
–0.029
0.0638
2
+0.029
0.0638
3
+0.103
0.0638
4
+0.052
0.0638
5
+0.176
0.0638
6
–0.010
0.0638
7
–0.107
0.0638
8
+0.138
0.0638
9
+0.075
0.0638
10
–0.008
0.0638
11
–0.013
0.0638
12
+0.078
0.0638
13
–0.005
0.0638
14
+0.013
0.0638
15
–0.070
0.0638
–1.0
–0.5
0.0
0.5
1.0

Note: Standard errors assume AR order of k–1

Figure A10.

Forecasts; Model: (1,0,0) seasonal lag: 12 input: VM

0.002 0.002 Observed Forecast ± 90.0000% 0.002 0.002 0.001 0.001 5e–4 5e–4 0 0 –5e–4 –5e–4
0.002
0.002
Observed
Forecast
± 90.0000%
0.002
0.002
0.001
0.001
5e–4
5e–4
0
0
–5e–4
–5e–4
–20
0
20
40
60
80
100
120
140
160
180
200
220
240
260
280

Notes: Start of origin: 1; end of origin: 246

RP

0.06 RP RM Stock market risk and price valuation 0.04 0.02 361 0.00 –0.02 –0.04 Figure
0.06
RP
RM
Stock market
risk and price
valuation
0.04
0.02
361
0.00
–0.02
–0.04
Figure A11.
–0.06
Stock and market returns
0
16
32
48
64
80
96
112
128
144
160
176
192
208
224
240
0.06 0.04 0.02 0.00 –0.02 –0.04 –0.06 –0.04 –0.03 –0.02 –0.01 0.00 0.01 0.02 0.03 0.04
0.06
0.04
0.02
0.00
–0.02
–0.04
–0.06
–0.04
–0.03
–0.02
–0.01
0.00
0.01
0.02
0.03
0.04
0.05

Note: y = 0.001+ 0.677*x+eps

Corresponding author

RM

Paraschos Maniatis can be contacted at: pman@sch.gr

Figure A12.

Regression of RP to RM

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