Driving Forces Behind Volatility in Both Growth- and Value- Firms
Firms are often valued using the future cash flows they will generate. A proxy for these cash flows are the company earnings. But while these earnings show an arguably predictable trend, the stock prices are considered to be unpredictable. This research will investigate the relation between stock price movement and earnings growth and volatility. It uses the Kalman Filter to establish whether or not a persistent trend can be found in earnings. Then, it will investigate the relation between the earnings and price movement for both growth and value firms. We used the largest firms in the CRSP US Mega Cap Growth and Value Index. We found that the firms in the data set show persistence in earnings growth. But in general, no relation is found between the earnings growth and price movement. For some firms we find that the earning trend shocks has an effect on the trading volume and volatility of the stock price. But no general statement can be made.
|Keywords||Keywords: Kalman filter, Expectation Maximization, Earnings growth, Stock, price volatility|
|Thesis Advisor||Lange, R.|
Liem, K.Y.S. (2019, May 21). Driving Forces Behind Volatility in Both Growth- and Value- Firms. Econometrie. Retrieved from http://hdl.handle.net/2105/47426