COLORADO COLLEGE
1874
2011-12
ECONOMICS AND BUSINESS DEPARTMENT
SENIOR THESIS GUIDELINES
AND ILLUSTRATIVE MATERIALS
Reprinted
Sept 2011
FINAL DUE DATES FOR SENIOR THESES IN THE
ECONOMICS AND BUSINESS DEPARTMENT, ACADEMIC YEAR 2011-12
Student Copy
If your second thesis
block is:
Block II
Block III
Block IV
Block V
Block VI
Due date for submission of your
completed thesis is 2:00 pm on :
December 9, 2011
February 3, 2012
March 2, 2012
April 6, 2012
May 4, 2012
Each due date falls on a Friday. The completed thesis MUST be UPLOADED TO THE
THESIS SUBMISSION MODULE BY NO LATER THAN 2:00PM OF THE DAY THAT
IT IS DUE. The uploading process will time-stamp your submission, so be aware that changes
to your uploaded document will delay the official submission time of your thesis. A “completed
thesis” is the final typed SINGLE DOCUMENT computer copy which complies with ALL the
thesis requirements of the Department and your advisor.
Failure to comply with this 2:00 p.m. deadline will result in the following sanctions:
Date/time thesis turned in
Grade Consequence
Potential Grade
Turned in on Due Date Friday
On or before 2:00 pm
No reduction in grade
If grade was an “A”
Turned in on Due Date Friday
Between 2:00-4:00 pm
Reduce grade by 1/3
Grade reduced to “A-“
Turned in after 4:00 pm on the
Friday it was due
Through the following Monday, before
2:00 pm
Reduce grade by 1
Grade reduced to “B”
Turned in after 2:00 pm on the
Monday after it was due
Through the following Tuesday, before
2:00 pm
Reduce grade by 1
Grade reduced to “C”
Turned in after 2:00 pm on the
Tuesday after it was due
Through the following Wednesday,
before 2:00 pm
Reduce grade by 1
Grade reduced to “D”
Not a passing grade
Turned in after 2:00 pm on the
Wednesday after it was due
“NC” grade given
I have reviewed the thesis deadline policy and agree to abide by it.
/s/______________________________________
Date ______________________
NAME (printed) ______________________________________________________
Advisor’s Signature ________________________________________________
SENIOR THESIS COURSE MEETING RULES
AND ASSOCIATED HELP-SESSION INFORMATION
Senior Thesis is a two-block course. Under the academic rules of Colorado College each student
must meet with the course instructor at 9:00 a.m. of the first day of each thesis block. Students
must check with the course instructor by 9:00 a.m. either for the formal meeting or, if the thesis
instructor is teaching another course scheduled at 9:00, the alternative time for the thesis meeting
which has been assigned by the thesis advisor. Students who fail to meet with their thesis
advisor on the first day of their first thesis block may be dropped from senior thesis. Students
who fail to meet with their thesis advisor on the first day of their second thesis block may earn 2
blocks of NC. Students must comply with the deadlines established for each thesis block by
their thesis advisor, whether written or verbal. Students who fail senior thesis, either one or both
blocks, may be allowed to re-enroll if there are both thesis slots remaining and faculty members
available to supervise.
Each Senior Thesis student is required to attend a meeting with a Reference Librarian in Tutt
Library the first week of the student's first thesis block. Please contact the Social Science
Librarian at Tutt Library Reference Desk to make an appointment.
Senior thesis students who are unfamiliar with word processing are required to sign up for and
complete word processing sessions through Information Services (Computing Services).
Information about dates and times of the programs can be secured by contacting Information
Services. The Department of Economics and Business will provide additional computer
assistance in solving word processing problems only to those students who have completed their
sessions.
An explanatory guide to using Microsoft Word on the Macintosh/WINDOWS is available from
the Economics Lab Technical Statistical Coordinator. In addition, templates are available on all
Colorado College student computers for the following preliminary materials: title page, honor
code page, table of contents, and list of figures/tables. If not serving the department in another
capacity which takes priority, the Economics and Business Department paraprofessional will be
available for computer-related assistance.
Each thesis must be submitted online and will require the entire document to be in a SINGLE
DOCUMENT. Instructions for submission and formatting will follow in this document and can
also be found on the Economics and Business Department website.
SPECIAL NOTE: Many types of field research (surveys, interviews, simulations, and some
types of case study research) will require approval by the Institutional Review Board (IRB).
Guidelines describing the kinds of research activities that require the review and approval of the
IRB as well as the process of obtaining IRB approval can be found at the IRB’s website:
http://www.coloradocollege.edu/dean/oir/irb/.
SENIOR THESIS
PURPOSE AND STANDARDS
PURPOSE: The primary purpose of senior thesis is to demonstrate that senior majors in
economics can draw from their undergraduate education comprehensively in analyzing a
significant problem or issue. Thus, the thesis is intended to develop through individual initiative
and independent research, a final product that demonstrates conclusively that the student can
formulate a testable hypothesis, present necessary background material, apply appropriate
theories, organize relevant data, and draw unbiased conclusions. The product must display good
formal writing, appropriate citation, logical progression, and a balance among description,
theory, and analysis.
STANDARDS: The hypothesis must state a problem or question whose answer is not
known or readily observable; it can be shown to be valid or invalid using logic and facts; it must
require research of differing opinions, theories, or facts to arrive at a logical, defensible
conclusion. The student must review both intermediate theory and elective courses in the
discipline to select, describe, and apply appropriate theories to the issue. Use of appropriate data
(both primary and secondary), demonstrated familiarity with documents, periodical literature,
and journals in the discipline, and a demonstrated ability to organize, evaluate, and present
conflicting information are necessary for success.
CONSIDERATIONS IN GRADING
No two instructors grade in exactly the same way. The following considerations are
some of the more important questions an instructor will probably ask when considering what
grade to give your thesis.
If the author has a thesis to defend, has the case been presented effectively and
persuasively? Has the author squarely faced the hard problems the position being analyzed
presents?
Is the examination of the thesis based on theory? Is the theory clearly explained and has
the student researched all applicable theory? Is the theory at an intermediate level?
 Has the research been properly done? How thorough has the writer been in examining the
authorities and other related materials?
 Has the writer been accurate in making statements and citing authority?
 Has the writer said something new? Is the writer original in thought and are the ideas valid
or at least worthy of consideration? Has the writer used the accumulated data to support a
conclusion of some consequence?
 Has the paper been written in a literate manner? Does it read well? Does it conform
rigorously to the prescribed form?
 Is the paper one the instructor could recommend to an interested layman seeking material
bearing on the subject of the thesis?
 Was the paper completed in a timely manner?
RULES TO PASS OR FAIL BY
1.
CITATIONS must conform to Turabian's A Manual for Writers of Term Papers, Theses,
and Dissertations, 7th ed. On the Economics & Business website under Thesis Resources
is a link to a PDF with examples of correct citations. A resource for citing sources in
both footnotes and a Sources Consulted list can be found at the University of Wisconsin
Madison website at http://writing.wisc.edu/Handbook/DocChicago.html, a link to this site
can also be found on our Tutt Library’s webpage for citing sources. Another example for
reference using Turabian can be located at the Duke University website at
http://www.lib.duke.edu/libguide/cite/works_cited.htm (link available from Tutt
Library’s Style and Writing Guide pages).
RefWorks, a bibliography management program available to all Colorado College
students, can be a helpful tool for saving and organizing citations. It is an effective
method to assist in the formatting of your bibliography, but some hand editing is
necessary. You are encouraged to attend a RefWorks workshop or consult with the
Social Sciences Liaison Librarian before you begin using RefWorks.
2.
STYLE: Several respected guides to style are Fowler, Modern English Usage (in
paperback form edited by Margaret Nicolson); Sir Ernest Gower's The Complete Plain
Words; Strunk and White's The Elements of Style; Ross-Larson's Edit Yourself ; and
Deirdre McCloskey’s Economical Writing.
3.
FORM:
a.
The thesis must be double spaced.
b.
Margins: Most computers will automatically be set with a left margin of 1”.
This should be changed at the beginning of the thesis writing to 1½”. This left
margin is necessary to allow for thesis binding. The left margin should be
checked each time new material is written (The margin is correctly set in the
thesis template in the Economics Lab. For more examples see Turabian, pages
374-375). Measure the margin with a ruler to be sure you are exact;
occasionally the computer will shorten the margin.
The right, top, and bottom margins must be 1” EXCEPT for the first page of each
chapter, which should have a 2” upper margin rather than the automatic 1”. This
can most easily be accomplished by hitting the “enter/return” key several
times. Use a ruler and measure!
The chapter title begins one double-spaced line below the chapter number and is
centered and capitalized. If the chapter title is longer than one line, the remainder
of the title should be single spaced in inverted pyramidal form.
c.
The first line of the chapter text begins one triple-spaced line below the chapter
title.
Pages must be numbered. It is easiest if you create section breaks in your paper
for each chapter, each appendix, and your sources consulted. This way you will
be able to format the page numbers for each section. Number the first page of
each section (i.e. chapter, appendix, glossary and sources consulted) at the
bottom; all other pages should be numbered in the upper right corner. Again,
having section breaks makes this possible and easier to format.
d.
Footnotes are required and must be placed at the bottom of the typed page on
which the footnoted materials appear. This makes the manuscript easier to read
and verify. They must be single spaced, with double spacing between each one.
Numbering begins again with each new chapter. Thus, the first footnote in
Chapter 1 will be numbered 1; the first footnote in Chapter 2 will be numbered 1,
etc. This instruction supersedes the option in thesis numbering contained in
Turabian. This decision reflects the fact that if editing requires insertion or
deletion of a footnote, a word processor can operate more rapidly, the fewer
footnotes it is forced to renumber. If your paper is in sections you can easily
format the footnotes to “restart at each section.”
e.
A Sources Consulted (bibliography) is absolutely necessary and must be
alphabetized. The Sources Consulted listing includes not only those sources cited
in the thesis but also any other sources the thesis writer has consulted in more
than a superficial way. This broad listing enables both the reader and the thesis
advisor to determine the depth and breadth of the research conducted by the thesis
student. The sources consulted section should not be “padded,” but it should
accurately reflect the research that undergirds the thesis.
f.
A Title page is required.
g.
It is required to abide by the Honor Code when writing a thesis. There will be a
check-box that must be filled out when submitting a thesis.
h.
Sections and Subsections (Headings and Subheadings) follow Turabian, pp.
397-398. Headings and subheadings are placed one triple-spaced line below the
last line of text; if more than one line, these should be single-spaced in inverted
pyramidal form. Headings should be centered. Subheadings should be aligned on
the right. The chapter titles, headings, and subheadings define the entries in the
Table of Contents. You should remember that your subheadings indicate the
organization of your thesis and serve as a guide for a reader of not only what is
included but its relation to your hypothesis.
i.
Orphans and widows: Make sure that one-liners are not left hanging on a new
page or stranded on the page before. Create or delete spaces and indents to
prevent this from happening. Similarly, do not leave titles and subsection
headings stranded on the page before.
j.
Requirements for tables and figures
Every table should be a self-contained unit so that if the table were torn from the
thesis and presented to a reader, the reader would not need to consult the thesis to
understand the data incorporated in the table. A table should present the data in
the clearest and most attractive way possible within the constraints of the thesis
format and style and accuracy in presenting the data. See Chapter 26 (pages 369371) of Turabian 7th ed.
Each table must be given a table number. Tables are to be given Arabic numbers
and are to be centered two spaces above the first line of the table title.
Each table must be given a full and complete title. The full table title is always to
be capitalized and single spaced. DO NOT BOLD THE TABLE TITLE. If the
table title is too long for a line, the title should be typed in inverted pyramidal
form. The title must indicate what the table contains, where the data applies, the
units in which the data are expressed, and the period covered by the table.
If explanatory notes are considered necessary or desirable, they should be entered
at the appropriate point in the table using symbols [*, **, #, ##]
In typing a table, the left margin must always be 1-1/2 inches. However, the right
margin may extend past the usual 1 inch right-hand margin (mandatory for pages
of text) if necessary.
In the headings of the columns of the table, if the units in which a column or
columns are cited apply to several columns, center the units under a caption
describing the material contained in the columns. The heading may incorporate
the units of measurement above the sub captions of the separate columns.
Units entered in a table are aligned on the decimal point (if the material contains
decimal points).
If a table is too long for a single page, a second continuation page(s) should be
made. Continuation pages are to be centered. The proper form on the following
centered page is TABLE 1 - Continued. The full table title should not be
repeated.
Explanatory notes of a table are to be entered before the source citation.
Every table must have a full source citation in the form used in any first citation
of a source in a footnote. Ibid and other shortened citations forms of material
discussed on a previous page of the thesis are not acceptable in the source note for
a table.
Figures (the term to be applied to all illustrative material other than tables and
including graphs, maps, diagrams, and other similar non-tabular material) are all
to be labeled as FIGURE, followed by sequential Arabic numbers. For example,
the second figure in Chapter 1 would be FIGURE 1.2, the fourth figure in Chapter
1 would be FIGURE 1.4, and so on.
If figures are too large for placement within the margins of a single page, the
figure may be created and then reduced on a copier. REMEMBER: the reduced
figure must remain legible and the 1-1/2 inch left margin is still mandatory!
Both tables and figures may, if absolutely necessary, be placed vertically rather
than horizontally. However, the rules regarding numbering, titling, explanatory
notes, and sources still apply, as does the 1½-inch left margin (which now
becomes the figure's top margin). Clear as mud? Ask the Technical Statistical
Coordinator.
Graphs should center captions for both horizontal and vertical axes horizontally
above or below the axis to which the caption applies.
Since graphs are a visual method of conveying information, do not distort
arithmetic graphs by beginning the vertical axis's origin at some value other than
zero. If values are so large an arithmetic graph does not reveal important changes
adequately, use a semi-logarithmic graph. If graphic problems develop in your
thesis, consult your thesis advisor.
Each table or figure must be placed immediately following the text in which first
reference to the material occurs. Exception to this placement of your thesis tables
and figures may be made if you and your thesis advisor decide that tables and
figures should be placed in an appendix. If tables and figures are placed in an
appendix, adherence to the other general requirements for tables and figures
apply.
Writers should remember that tables and figures are devices for summarizing
important material with accuracy, completeness and pleasant appearance. If these
goals cannot be attained, the table or figure should not be used.
4.
ASSEMBLE the thesis in the following order:
a.
title page
b.
abstract
c.
dedication (if considered appropriate and of great importance)
d.
blank page
e.
table of contents
f.
list of tables
g.
list of figures
h.
preface (usually not included in a senior thesis)
i.
acknowledgements (if desired)
j.
text
k.
appendix(es) (if appropriate)
l.
glossary (if appropriate)
m.
sources consulted
5.
SUBMISSION: The thesis is due by 2:00 p.m. on the dates indicated at the front of this
document. Your responsibility is to meet this deadline without exception. You must
upload the entire document to the thesis submission module (online) by this due date, it
will be time stamped so there is no hiding it! It is your responsibility to anticipate and
avoid delays. Please keep in mind that formatting a thesis into a single document takes a
significant amount of time. Don’t leave this task until 1:30pm the day that it is due!!
The Murphy's Law of Thesis states that the computer network will experience downtime
the week your thesis is due. The URL for the submission module can be obtained from
the CC Economics and Business Department Website. The module DOES NOT WORK
OFF CAMPUS, so you HAVE TO COME TO CAMPUS TO SUBMIT YOUR THESIS.
See your Technical Statistical Coordinator for more instructions on how to upload your
thesis to the submission module.
FAILURE TO MEET THE DEADLINE WILL RESULT IN SANCTIONS THAT
MAY INCLUDE UP TO A GRADE OF 2 BLOCKS OF NO CREDIT FOR THE
COURSE. See Page 2 for further details.
6.
BINDING: You may have personal copies bound and mailed to you for a charge.
Since your thesis will be archived digitally, you should consider retaining a copy
for your own use. Ask the department secretary for the cost of the personal copy.
7.
LENGTH: The minimum length of the paper is 50 typed pages of essentially original
writing. Shorter theses will be severely reduced in grade or even rejected at the
discretion of your thesis advisor.
Awards and thesis funds available
Ray O. Werner Thesis Prize: There is a cash prize awarded for the best Economics and
Business Department senior thesis. The winner is selected by a panel of judges from the
department.
Robin Satterwhite: There is a cash prize awarded to the thesis exhibiting the most
original methodology or research approach. The winner is selected by a panel of judges
from the department.
Thesis Funds: In certain extraordinary circumstances, thesis funds of $500 or less are
available to support thesis work. These funds may only be used for purchase of data or
software. These data and software will then belong to the department. Applications to
the department must include a description of the data or software to be purchased, the use
to be made of it, an explanation of why free data or data available through the library or
existing software is inadequate to the needs of the project and a letter of support from the
thesis advisor.
Center this page
horizontally & vertically.
(Template available on the
Economics & Business website.)
YOUR THESIS TITLE
Title is in
ALL CAPS.
Watch out for
typos.
A THESIS
Presented to
The Faculty of the Department of Economics and Business
The Colorado College
1-1/2” margin on left.
1” margin on right.
In Partial Fulfillment of the Requirements for the Degree
Bachelor of Arts
By
[Your Name]
Graduation Month Year
This will be either
December or May.
NO PAGE
NUMBER.
Copy your title from
your title page.
Template available
on the Economics &
Business website.
TITLE OF THESIS GOES HERE
Your Name
This is either
December or May.
Month Year
Major
Abstract
Insert text of abstract here. An abstract must be no longer than one page, but may be as
short as 1 paragraph. An abstract is a brief summary of your thesis. It should include the
context of the problem, a statement of your problem or hypothesis, the approach or
method, and the data or evidence used in your analysis. An abstract usually ends with a
statement of the main point or with a statement that anticipates the main point of the
thesis.
KEYWORDS: (Word, Word, Word)
Center this page
horizontally & vertically.
THIS PAGE IS ONLY IF YOU
WANT TO GET YOUR THESIS
BOUND
(Template available on the
Economics & Business website.)
ON MY HONOR, I HAVE NEITHER GIVEN NOR RECEIVED
UNAUTHORIZED AID ON THIS THESIS
Signature
NO PAGE
NUMBER.
Center Table of Contents top to bottom.
Hit “enter” a few times, or “del.” Use
“tab” to create additional Rows and
Cells.
(Template available on the
Economics & Business website.)
TABLE OF CONTENTS
ABSTRACT
iii
ACKNOWLEDGEMENTS
iv
1
INTRODUCTION
1
2
THEORY
5
2.1 The Net Present Value (NPV) Argument.......................................................
8
2.2 Stochastic Processes.......................................................................................
9
2.2.1 Wiener Process.....................................................................................
9
2.2.2 Ito’s Lemma.........................................................................................
23
2.2.3 Application...........................................................................................
27
2.3 Other Elementary Stochastic Processes.........................................................
30
NO PAGE
NUMBER.
Center Table of Contents top to bottom.
Hit “enter” a few times, or “del.” Use
“tab” to create additional Rows and
Cells.
(Template available on the
Economics & Business website.)
LIST OF TABLES
2.1
Turkish Population in Europe (2005) ………..………………….…………...
10
2.2
Descriptive Statistics …………………………….…………………………..
45
5.3
Type of Employment Status …………………………………………………
70
NO PAGE
NUMBER.
Center top to bottom.
Hit “enter” a few times, or “del.”
Use “tab” to create additional Rows
and Cells.
(Template available on the
Economics & Business website.)
LIST OF FIGURES
3.1 Venture Capital Decision Process.…………………………………………….
26
3.2 Financing Decision……...……………………………………………………..
31
3.3 Potential Investors…...………………………………………………………...
32
3.4 SBA Loan Process……..………………………………………………………
34
3.5 Banks…..………………………………………………………………………
35
3.6 Angel Investors……...………………………………………………………...
36
3.7 Venture Capital………..………………………………………………………
37
NO PAGE
NUMBER.
CHAPTER I
INTRODUCTION
Recent literature in behavioral finance has contradicted the notion of efficiency of
markets. More emphasis on how psychological biases influence the behavior of an
investor and its implications on the asset prices has led to a strong debate among
'
proponents of behavioral finance and neoclassical finance. Some financial economists
claim that the premise that rational individuals in a complete, competitive market to
maximize their utility level does not truly determine the structure and dynamics of asset
prices. In other words, some poorly informed and unsophisticated investors might lead
the financial markets to be inefficient. Though the principles of traditional corporate
finance have great value, some psychological obstacles may exist that prevent the
organizations from putting them into practice.2 The wide-ranging debate between
neoclassical and behavioral finance has a concrete effect on the financial markets
worldwide including emerging
market^.^
This has resulted in the need to study how the
psychology of investors affects financial decisions in households, markets and
organizations.
'
Werner De Bondt, Gulnur Muradoglu, Hersh Shefrin and Sotiris K. Staikouras,"Behavioral
Finance: Quo Vadis?" Journal of Applied Finance (FalVWinter 2008): 7-2 1.
Ibid.
Ibid.
Previous research studies have done substantial work on defining a human
sentiment function in a stochastic discount factor (SDF) model. Furthermore, the recent
financial turmoil that took place in 2008 reflected highly volatile swings of sentiment in
both equity and debt markets. This has motivated the author to investigate the direct
linkage between the investor sentiment function and the pricing of an asset. Investor
sentiment, broadly understood as erroneous beliefs about future cash flows and risks,
potentially affects the prices of all the
asset^.^
Both behavioral finance and neoclassical
finance have different implications for asset pricing and the relationship between risk and
return. This paper will provide the necessary fi-amework for understanding the
behavioral asset pricing model (which includes human sentiment) and the traditional
neoclassical pricing model (which excludes human sentiment) to find out which model
better explains the pricing of an asset. The study looks into 35 large sample firms
belonging to three different industries (healthcare, financial services and aviation and
defense) and conducts an empirical analysis on the effect of the investors' sentiment
measure on stock prices over a time period of 56 years, from 1950 to 2005.
The paper is divided into the following chapters. Chapter I1 gives an overview of
different of underlying opinions in behavioral finance and neoclassical finance. This
includes different measurements of risk and return, models that incorporate market
efficiency, psychological biases and information processing errors to which investors are
prone, different sentiment indicators and a quantitative definition of the investor
sentiment function. Chapter I11 presents a detailed description of how different financial
theories on market efficiency and asset pricing have evolved over a period of time. The
Evan Andersn, Eric Ghysels and Jennifer Juergens, "Do Heterogeneous Beliefs Matter for Asset
Pricing?" The Review of Financial Studies, Vol. 1 8 , no. 3 (Autumn 2005): 902.
CHAPTER I1
THEORY
Both behavioral finance and neoclassical finance have different implications for
asset pricing and the relationship between risk and return. Recent literature in financial
economics has contradicted the notion of market efficiency and explained the influence
of psychological biases on the behavior of an investor and the asset prices. It is necessary
to delve into the fundamental theories of asset pricing - both neoclassical and
behavioral
-
to better understand the linkage between investor sentiment and the asset
prices. This chapter provides a comprehensive study of fundamental principles in the
field of finance: models that represent market efficiency and behavioral theories related
to information processing errors that lead to market inefficiency. It also explains in detail
how modern asset pricing theory, built around the concept of a stochastic discount factor
(SDF), can be extended to incorporate behavioral elements.
Market Efficiency
This section will discuss some significant theories in neoclassical finance that
support the idea of rational investors, competitive markets and passive strategy. It
explains in detail the theoretical arguments presented in support of market efficiency
sequentially, particularly the models that depict the relationship between risk and return,
It also sheds insight on some of the key elements of the efficient market hypothesis
(EMH).
The Capital Asset Pricing Model (CAPM)
To better understand how assets are priced and valued, one must understand and
consider the concept of the capital asset pricing model (CAPM). This model provides a
precise prediction of the relationship between the risk of an asset and its expected return.
It is built upon two basic assumptions: preference of investors and the nature of financial
markets. First, investors consider trade-off between risk and return while allocating
various investments between different assets for a specific period of time. They do not
incur any transaction costs, such as commissions, service charges and taxes and have
access to unlimited borrowing or lending opportunities. Second, the market consists of
several investors who cannot affect prices by their individual trades and who analyze
securities in the same way.' These assumptions facilitate the study of market equilibrium
that can be mathematically expressed as:
E( r,) - rf = A*D;
(2.1)
where E( rM) is the expected return of market portfolio, rf is the risk-free rate, A* is a
scale factor representing the degree of risk aversion of the average investor and aM is the
standard deviation of the return on the market portfolio.2 This equation shows that the
risk premium on the market portfolio is directly proportional to the variance of the market
portfolio and the investor's degree of risk aversion. One of the implications of CAPM is
that all investors choose to hold the market portfolio (M), the tangency point of the
capital market line (CML) and the efficient frontier (see Figure 2.1). Because each
investor uses the market portfolio for the optimal risky portfolio, the capital allocation
I
Zvi Bodie, Alex Kane and Alan J. Marcus, Essentials of Investment: Capital Assel Pricing and
Arbitrage Pricing Theory (New York: McGraw-HilliIrwin, 2008), 193.
Bodie, Kane and Marcus, 194.
FIGURE 2.1
THE EFFICIENT FRONTIER AND THE CAPITAL MARKET LINE
E(r) = Expected return on market portfolio
a,= Standard deviation of market portfolio
SOURCE: Zvi Bodie, Alex Kane and Alan J. Marcus, Essentials of Investment: Capital Asset
Pricing and Arbitrage Pricing Theoly (New York: McGraw-HillIIrwin, 2008), 195.
TABLE 4.1
VARIABLE DEFINTIONS AND FORMULA
Variable
Definition
PRI
Price of a stock
SI
Investor Sentiment Index
f(CEFD,S,TURN)
GPGR
Gross Profit Growth Rate
Change in Gross Profit X 100
Initial Gross Profit
LIA
Current Ratio
Total Current Assets
Total Current Liabilities
LEV
Debt Ratio
Total Debt
Total Assets
ROE
Return on Equity
Net Income
Stockholders' Equity
DIV
Dividends per Share
Total Dividends
Average number of shares
FCF
Free Cash Flow to Equity
FCF = Net Income - Net Capital
Formula
f(SI,GPGR,LIA,LEV,ROE,DIV,FCF)
Expenditure - Change in Net Working
Capital + New Debt - Debt Repayment
Independent Variables
The empirical model uses seven different independent variables: investor
sentiment index (SI), gross profit growth rate (GPGR), current ratio (LIA), debt ratio
(LEV), return on equity (ROE), dividends per share (DIV) and free cash flow to equity
(FCF). These variables are discussed briefly in the following section.
-22.62
1.11
195.17
1.23
FCF
DIV
0.55
0.53
LEV
5.85
2324.42
0.70
0.85
-362.91
0.28
56
56
562.45
0.66
56
0.11
FCF
DIV
LEV
1.17
-1367.29
1.38
1.2 1
-210.35
1.35
1.78
8347.56
1.92
0.87
0.76
-14497.79
STATISTICAL SUMMARY FOR EACH INDUSTRY AND THE ENTIRE SAMPLE
TABLE 4.2
0.23
3692.29
0.23
42
44
43
WORKS CONSULTED
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