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

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To cite this document: 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 Permanent link to this document: http://dx.doi.org/10.1108/03074351111115304 Downloaded on: 31-05-2012 References: This document contains references to 43 other documents To copy this document: permissions@emeraldinsight.com This document has been downloaded 1155 times since 2011. *

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Keywords Stock markets. Design/methodology/approach – The paper investigates the existence of unit roots in the stock and in all stock index. Finally.com/0307-4358.P1 all known ¼ Pt Þ. risk and risk measures The efﬁcient market hypothesis. Greece and Kuwait-Maastricht Business School. it results that all past information is useless.A. Pt21 . accepting above-average risks is the only way to obtain better-than-average returns. stock can be approximated by a random walk. which come in three different versions: Managerial Finance Vol. What the efﬁcient market hypothesis (EMH) is concerned with is under what conditions an investor can earn excess returns in a stock. it looks at the relationship between stock returns and market returns in the lines of the market model. 4. 347-361 q Emerald Group Publishing Limited 0307-4358 DOI 10. since stock’s predictability and risk are in an inverse relationship. Salmiya. In every day terms. Originality/value – The paper’s value lies in looking into the probability that if the EMH is even approximately true. therefore.The current issue and full text archive of this journal is available at www. the EMH and the Bachelier’s claims are lumped together and collectively labeled random walk theories (RWT). the EMH is the claim that all information available is already reﬂected in the price of the stock.A. that the Bachelier’s (1990) work who claimed in his thesis “The logged closing prices lnPt of a stock constitute a time series in which lnPt-lnPt2 1 (which Bachelier deﬁnes as the share’s returns) are stationary independent increments. . . 2011 pp. and to valuate the risk associated to this stock. 37 No. . Paraschos Maniatis Department of Business Administration. the risk associated with the stock can to some extent be statistically rationalised.htm Individual stock market risk and price valuation: the case of Titan S. The origin of the modern ﬁnance stochastic is ´ orie de la Speculation”. Stock returns. The ﬁrst question is equivalent to the efﬁcient market hypothesis (EMH) and. Athens. This statement in the EMH context is equivalent to the statement that the stock’s closing price Pt is a random walk. to the predictability of stock’s closing price. normally distributed with zero mean and ﬁnite variance. in the lines of Dicky-Fuller modeling. And since the best forecast for the tomorrow’s price in a random walk is today’s price ðforecast Ptþ1 ¼ E½Ptþ1 =Pt . Kuwait Abstract Purpose – The purpose of this study is twofold: to test the hypothesis that the closing prices of Titan S. 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. Greece Paper type Case study Stock market risk and price valuation 347 1.emeraldinsight. Athens University of Economics and Business. Literature review The efﬁcient market hypothesis. Financial risk. Findings – The study concludes that although the predictability of the stock returns is impossible. The second question follows the ﬁrst in a natural way.1108/03074351111115304 . In the ﬁnance literature.

In the present case. the strong version claims that no matter where one gets information. one has to be careful in equating volatility with risk. After all. fundamentals are too. the EMH claims that is useless to gather information. But perhaps there is still hope for a winning portfolio-selection strategy by employing insider sources of information. something inherently paradoxical about the EMH. but could also make losses if it drops. but it can also decrease substantially. If the random walk hypothesis is true. Further. That is. . An investor interesting in purchasing such a volatile stock might make large gains if the price rises substantially. the empirical evidence clearly indicates otherwise. . stock exchange markets in all over the world exhibit such better results. like the EMH’s inherent assumptions about the pricing mechanisms and rationality on the part of investors. to investigate whether volatility changes over time in any particular way. the behavior of stock prices cannot be explained empirically other than to say that their changes are inherently unpredictable. Risk measured by volatility. it will prove useless in the long-term in obtaining better than market average increment results. it would appear that one cannot really study stock prices in any empirical sense. 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. . No trading scheme based on any publicly available information will be able to outperform the market.MF 37. This argument suggests that volatility is a measure of the riskiness of a stock. But how can this happen if no one gathers information? In order for the EMH to be valid. So it can be true if the traders do not think it is true [. like Bachelier’s statistical properties. then it should be impossible to make consistently better-than-average returns. however.4 348 (1) The weak RWT. On the one hand. These ideas come with assumptions. (2) The semi-strong RWT. it will do no better at all in the development of a trading strategy that will outperform the market. Yet. There is. (3) The strong RWT. if the EMH is even approximately true. not only is technical analysis useless. or implicit. No trading scheme based upon any information sources whatsoever can outperform the market. if a stock is highly volatile then its price can increase quite substantially. However. the aim of most empirical research is to use explanatory variables to explain the variation in a dependent variable. 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. volatility is related to risk.]. No technical analysis trading system based on price data alone can ever outperform the market. In stock markets. In particular. the EMH claims that all available information has already been incorporated into the price of the stock. 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. either explicit. All such publicly available information has already been taken into account in setting the current price of the stock. there must be a sufﬁciently large number of traders who do not believe it. For this case one has. 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. According to semi-strong RWT. However. On the other hand. Thus.

. t ¼ 2. symbols and computation details In our investigation. which deﬁnes a time series with 247 daily observations. Data. which is remote from the present situation of the stock. and overall the portfolio is quite safe. .g. 3. Interrogation on returns means interrogation on risk. . capital pricing model. the returns are inherently connected with risk. namely. . The stock’s closing prices are paired to the closing prices of all stocks general index for the same dates. The negative correlation suggests that whenever one stock drops in value. 247: Pt 2 Pt21 the stock returns in day t RPt ¼ Pt21 Mt closing price of all stock index (market index) stock in day t: DMt ¼ Mt 2 Mt21 VMt market’s volatility in day t deﬁned as the squared deviation of lnðMt =Mt21 Þ from the mean of the terms lnðMt =Mt21 Þ. . This question is approached by the market model. 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. We have used the following symbols for all performed analyses: Pt closing price of Titan stock in day t: DPt ¼ Pt 2 Pt21 VPt stock’s volatility in day t deﬁned as the squared deviation of lnðPt =Pt21 Þ from the mean of the terms lnðPt =Pt21 Þ.Financial models (e. 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. there exists much more recent data. The data covers the period 2 January 2003 through 31 December 2003. there is another aspect that is also important. But in ﬁnance. 247: Mt 2 Mt21 the stock returns in day t: RMt ¼ Mt21 Stock market risk and price valuation 349 . . 2. 3. we have considered the daily closing prices of the ﬁrm’s common stock for the year 2003. While the volatility of stocks is an important aspect in an investment decision. how the market risk affects the stock’s risk. Risk measured by the market model. we have for obvious reasons chosen as investigation year the year 2003. . Strictly speaking the market model investigates the stock’s returns as a function of the market returns. Although. CAPM or the market model) emphasize that the riskiness of a portfolio of stocks depends not only on the volatility of the individual stocks. So even though each stock is individually risky (due to the high volatility). . t ¼ 2. the risks cancel each other out. the capital asset. The rationale behind the market model is to relate the returns of an individual stock to the market risk. the other one rises.

we test the hypothesis that the time series of the stock and all stock indexes are random walks (with or without drift). one can still have some information on the risk exposure . Figures A2 and A3 show the results of spectral analysis of the time series. we have embedded the main results in the text. 2 3. we check the hypothesis of existence of unit roots in the series considering them as a random walk. In order to give evidence to this anticipation.e. 3. the unit root hypothesis cannot be discarded t ¼ 2 2. they exhibit behavior of a random walk. However. the testing of the hypothesis is reduced to testing whether the time series is a random walk or not.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 most of the econometric studies of the stock (and ﬁnancial in general) time series contain a unit root – i. 3. The consequences of the existence of unit root are fatal in relation to the possibility of forecast the future values of the stock. Therefore. Therefore.4 For all ﬁgures and calculations. However.14 in model (1) and in model (2) t ¼ 2 0. 120 and 240 days. For this purpose. In the following. This conclusion is supported by the spectral analysis of the time series.MF 37. Hence. since the time mean of the series changes with the time.135337 . 2 3. 0 at level of signiﬁcance 5 percent.14. appended to this text. The analysis relates to the effective markets hypothesis. risk valuation applying volatility analysis of the time series and risk valuation on the base of the market model. The similarity in the cyclical movements implies that both time series follow more or less the same market behavior. The original data and the calculation details are shown in the appropriate STATISTICA ﬁles. each series considered individually does not exhibit the form of a stationary time series. since under this hypothesis the closing prices is a random walk and the best prediction for the stock is its last realized value. Nevertheless. 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 H0: b ¼ 0 against the alternative H1: b . The periodograms of the stock and market exhibit common cycles of duration approximately 60. after trend elimination and mean extraction. we apply the Dickey-Fuller unit root test. According to the formulation of the unit root tests. for convenience reasons. Statistical analysis The statistical analysis includes investigation of unit roots existence in the time series. the models to be tested are: DPt ¼ d þ bPt21 þ 1t and: DMt ¼ d þ bMt21 þ 1t ð2Þ ð1Þ 350 The term 1t in the models is a random variable (residuals) with zero mean and constant variance. The two-time series exhibit a remote but clear similarity in cycles and a rather opposite trend. regardless of the opposite trends the series seem to move in the same variation pattern.84690 . we have used the STATISTICA program. 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.

135337 0.851587 5.81514 0. As shown in Table III. investigating the stock’s volatility.094008 t (244) 5. estimating the autoregressive scheme: VPt ¼ a þ bVPt21 Standard error of parameter 0. However.497922 Standard error of parameter 0.000153 0. we consider each variable as an autoregressive scheme.02818 2 2. However.018725 ð4Þ Parameter d b Parameter estimate 0. Figures A5-A7 show the autocorrelation and the partial autocorrelation functions for the stock’s volatility.61601 0. Hence.000815 11. Regression results for unit root test in the model DMt ¼ d þ bMt21 þ 1t Parameter a b Parameter estimate 0. R 2 0.2 Volatility of stock and market Figure A4 shows the volatilities of the closing values of the stock and market. since the scope of the study is the investigation is the stock’s predictability. For this purpose. in particular investigating the possibility that the volatility can be described by an autoregressive scheme.000000 Adj.) 2. Regression results for unit root test in the model DPt ¼ d þ bPt21 þ 1t Standard Parameter error of Parameter estimate parameter d b 3.311221 0.of the stock.0533309 t (244) p-level Adj. 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.000000 0.005274 0.892457 Table II. the stock’s volatility follows in a remote way the behavior of the markets’ volatility.84690 0. as obtained by the model: VPt ¼ a þ bVMt þ 1t ð3Þ Stock market risk and price valuation 351 Table III shows the regression results.537515 2 0. The shape of the schedules gives some evidence that the courses of these two variables are related. 3. Regression results in the model VPt ¼ a þ bVMt þ 1t .14 (for 246 observ. Indeed.000026 0.304538 0.09944216 Table III.) 0.004791 Table I.00602 t (244) p-level Adj. The shape of the autocorrelation function advocates for the anticipation that the stocks volatility is a white noise.14 (for 246 observ.760978 0. R 2 Dickey-Fuller critical value for left-hand t-test at 5 percent 2 3.876131 2 0. R 2 Dickey-Fuller critical value for left-hand t-test at 5 percent 2 3. 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). this anticipation is enforced by the regression of the stock’s volatility VP to markets volatility VM.296565 p-level 0.00000 2 0.

It is likely that the speciﬁc cyclical character of the company’s activity renders offers to the stock’s volatility a degree of predictability.4 Positive and signiﬁcant values for the model parameters are obtained. ¼ slope (the beta coefﬁcient in ﬁnancial vocabulary).000225 0.035791 Table V. within a conﬁdence interval.455674 0.MF 37.029237 Asympt. Parameters estimates in the autoregressive model VPt ¼ a þ bVPt21 þ 1t Parameter a b p-level 0.259412 Table IV. the behavior of the market’s volatility as a white noise cannot be rejected. 0.000278 0. is interpreted as the measure of risk associated to the stock in the sense that if b . we give in Table V the estimation results for the autoregressive scheme: VMt ¼ a þ bVMt21 þ 1t : ð5Þ 352 In this model. The parameters’ estimation is shown in Table IV.000000 2 0. 0. predictable.008980 0.110991 Lower Upper 95 percent conf. standard error 0.064161 Asympt. the estimate of b. ¼ regression’s residual error in time t. Parameters estimates in the autoregressive model VMt ¼ a þ bVMt21 þ 1t Parameter a b Parameter estimate 0. ¼ the returns of the market (all stocks index) in time t. 1.333619 2. 95 percent conf. The market model is deﬁned as: RPt ¼ a þ bRMt þ 1t a b RPt ¼ ðPt 2 Pt21 Þ=Pt21 RMt ¼ ðMt 2 Mt21 Þ=Mt21 ¼ intercept.649030 . 3. 95 percent conf.155618 0. since the beta’s estimate is not signiﬁcant at a 5 percent signiﬁcance level (the estimation results are shown in Table V). Therefore.097144 9. For comparison reasons. which is not enjoyed by the market’s volatility.000174 0. the stock’s volatility is in some degree. ¼ the returns of the individual stock in time t.805888 0.000000 0.000116 2 0. However. 1t In most of times b.3 The market model In this paragraph.000145 2 0.134196 Asympt. we cannot reject the hypothesis that the stock’s volatility is an AR(1) scheme. we investigate the risk valuation based on the market model.000027 0. Based on the p-level values for the model parameters.063570 Asympt. standard error 0. a better risk measure is the variance explained by the regression: if (SRP)2 is the total variance of the depended variable RS can be analyzed as: ðSRP Þ2 ¼ b2 ðSRM Þ2 þ ðSeÞ2 Parameter estimate 0.000015 0. 1 the stock is less responding to the market variations and more responding if b . t (244) p-level Lower Upper 95 percent conf. t (244) 8.000171 0.

We see that b is involved again in the stock risk but it plays a different role as parameter in the risk measurement. we read a p-level value . In Table VI. and the speciﬁc risk 100 2 29. but different kinds of risk. the not explained part of variance by the regression. 0. the value of beta’s estimate (0. much better interpretable is the systematic stock’s risk as measured by R 2. . while 1 2 R 2 measures the risk the connected to the speciﬁc character of the stock.4 percent of the total stock’s risk. From this point of view.6 percent. although less than one. is considered to be the systematic risk of the stock. even in a conﬁdence interval. Further. both beta coefﬁcient and R 2 measure risk. 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. indicates sufﬁcient response of the stock’s returns to the market ones. explained by the regression. while the statistical signiﬁcance of the beta coefﬁcient cannot be rejected at signiﬁcance level 5 percent. which discards any hope of forecasting its future closing prices.In this context. Stock market risk and price valuation 353 Parameter a b Parameter estimate 2 0. is considered as the speciﬁc risk of the stock due to its individual character.29410088 Table VI. The Titan’s stock is exposed to a speciﬁc risk about 70 percent of the global stock’s risk. . according to the ﬁnancial interpretation of beta. If this was not the case. the variance b2(SRM)2. But this outcome has never been conﬁrmed by the stock exchange practice and experience.000000 R2 0. which is the squared regression’s coefﬁcient of determination.000807 0.001110 0. 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. associated to the market variations. 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.4 ¼ 70. From these values.05 for the regression’s intercept and a zero p-level value for the beta coefﬁcient. The time series of the Titan stock is exposing the characteristics of a random walk.15259 p-level 0. 4. The two measures are not contradictory.676685 Standard error of parameter 0. measures the portion of the stock’s systematic risk in the total stock’s risk.676685).170134 0.37584 10. 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.066651 t (244) 2 1. However. Conclusions Summarizing the ﬁndings of the analysis. the risk associated to the stock. which counts for 29. which is cannot offer any further information. The ratio b2 ðSRM Þ2 =ðSRP Þ2 . Differing the time series one will obtain a white noise. 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. Regression results in the model RPt ¼ a þ bVMt þ 1t . while the term (Se)2. we conclude that the intercept is not statistically signiﬁcant. In this aspect. is less than the market risk. the speculators could systematically obtain (a few) positive proﬁts. we can proceed to the following conclusions: .

The Further reading ´ tude Statistique des De ´pendences. Aunon. Research Design Issues in the Estimation of Beta. Faff. Paciﬁc-Basin Finance Journal. and Colton. Vol. Blake. Chatﬁeld. 156-8. 48. Collins. R. 425-48. the stock’s volatility can to an extent be foreseen. A. Financial Market Analysis. Black. “The form of time variation of systematic risk: some Australian evidence”. “Beta and return”. pp. (1900). “Some further evidence on the stochastic properties of systematic risk”. 18. pp. . 2. (1964). McGraw-Hill. Paris. D. (1992). Brailsford. H. Black. Moscow. Statistical Methods. and Lee. (1992). (1993). Applied Economic Letters.MF 37. D. 61-73. and Rayburn. Vol. (1997). NY. (1970). 60. Vol. NY. 36-8. McGraw-Hill. pp.. one obtains statistically signiﬁcant estimates of intercept and slope. Mir. and Oliver. 19. one has to reckon with increased speculation proﬁts in order to restore the balance higher risk/higher proﬁts. 7. “Beta and return”. C. (1990). (1993a).4 . and Lakonishok. D. Australian Journal of Management. Vol. “Risk measurement when shares are subject to infrequent trading”. 5. T. Aivazian. pp. T. London. Although. pp. Financial Analysis Journal. Journal of Business. 20. T. (1979). pp. E. a note”. R. 785-95. Davies. Brealey. Dimson. Principles of Corporate Finance. Vol. and Faff. (1993b). J. (1996). E Arkin. F. Vol. Brooks. JASSA. New York. (1997). Journal of Portfolio Management. 357-76. (1992).C. L. B. and Myers. 8-18. J. 2. Corhay. pp. NY. London. Brailsford. Chan. Vol. and Chandrasekar. “The intervaling-effect bias in beta. Vol. Gautier-Villars. Besides. McGraw-Hill. S. Journal of Finance. Bachelier. 30. NY. “Are reports of beta’s death premature?”. 109-32. The Art of Managing Finance. M. Blume. J. 197-226. “The impact of the return interval on the estimation of systematic risk in Australia”. Given the high degree of risk in the stock. New York. Brailsford. New York.A. R. (1987). Vol. (1975). Journal of Portfolio Management. pp. (1993). McGraw-Hill. pp. L. Vol. R. The Analysis of Time Series. Journal of Banking & Finance.. since its volatility can plausibly be described by an autoregressive scheme AR(1). which can offer additional information for the stock’s volatility. J. F. “An empirical test of the effect of the return interval on conditional volatility”. (1998). T. S. 1. 191-8. Barnes & Noble. “Betas and the regression tendencies”. and Josev. T. R. Faff. V. pp. Applied Financial Economics. “Modelling Australian stock market volatility”. Brailsford. Chapman & Hall. 51-62. pp. Introduction to Probability and Random Processes. 1. Brailsford. London. R. and Davis. pp. 16. Vol. Journal of Financial Economics. (1995). 14-18. “Valuation with imputation”. J. the closing prices of the stock do not offer any prediction help. Vol.. T. regressing the stock’s volatility to market’s volatility. Ledolter. New York. Vol. 354 . (1995). McGraw-Hill Series in Advanced Finance. Reference ´ orie de la Speculation. K. (1991).

Eﬁmov. (1977). 32. 157-77. (1995). 5. NY. (1993). G. Vol. S. (1969). Vol. Fama. (1976). Journal of Finance. Vol. D. and Francis. “Time stationarity of systematic risk: some Australian evidence”.S. 253-70. pp. Journal of Finance.F.Draper. J. Fama. pp. “The relation between the return interval and betas: implications for the size effect”. NY. and Wasley. Vol. (1983). pp. and Francis. Vol. R. Wiley. 1093-9. Vol. Vol. 22. 309-27. “Multifactor explanations of asset pricing anomalies”. Financial Analysis Journal. 13 No. Principles of Econometrics. and French. Vol. 3-22.V. H. and Fry. Handa. Vol. (1986). 55-84. pp. Vol. Fabozzi. Einfuerung in die Statistik. pp. “Why beta shifts as the return interval changes”. “The valuation of risk assets and the selection of risky investments in stock portfolios and capital budgets”. (1973). (Ed. Journal of Finance. February. (1995). “The arbitrage theory of capital asset pricing”. “Estimating betas from non-synchronous data”. J. Journal of Business Finance and Accounting. Stuttgart.) (1988). and Wood. Journal of Financial Economics. Lintner. 47 No. (1992). Huang. (1992). (1992). 1243-50. Vol. 13-37. (1963). New York. pp. J. 2. “Stability tests for alphas and betas over bull and bear market conditions”. Regression and Econometric Methods. and Williams. 3. Ventsel. (1977). J. Accounting Research Journal. (1989). Vol. Fama. and French. R. pp. 893-906. Ross. P. 33. Fama. 9 No. E. (1992). J. K. Teubner. Lehn.) Stock market risk and price valuation 355 . 19. pp. Vol. pp. Random Functions in Higher Mathematics Part 3. 23. 277-93. “Empirical irregularities in the estimation of beta: the impact of alternative estimation assumptions and procedures”. M. K. 79-100. pp. “A simpliﬁed model for portfolio analysis”. L. (1976). S. H. (1979). K. Journal of Financial Economics. 277-86. Lee. Vol. The (The Appendix follows overleaf. K. 3-56. Basic Books. and Paudyal. pp. F. 22. New York. Journal of Financial Economics. Faff. New York. pp. 341-60. 39. E. 73-7. W. Wiley. Journal of Finance. Hawawini. Journal of Economic Theory. Faff. Journal of Finance. Moscow. P. and Wegmann. McInish. Mir. pp.. (1970). A. “The cross-section of expected returns”. 41. J. T. E. “An examination of beta estimation using daily Irish data”. E. pp. R. Management Science. Foundations of Finance. 51. (1996). “Capital market anomalies: a survey on the evidence”. Vol. H. (1986). Journal of Business Finance and Accounting. pp. 1. Vol. “Mutual fund systematic risk for bull and bear markets”. Moscow. Mir. Scholes. Sharpe.A. C. F. Murray. Theil. 427-65. ´ orie des Probabilite ´ s. Fabozzi. Kothari. NY. and French. 47. Journal of Business Finance and Accounting. 5.. pp. “Common risk factors in the returns on stocks and bonds”. T. “Adjusting for beta bias: an assessment of alternative techniques: a note”. 34. Review of Economics and Statistics.

Spectral analysis of stock Period Note: No.400 50 50 40 Periodogram values 40 30 30 20 20 10 10 0 0 20 40 60 80 100 120 140 160 180 200 220 240 0 260 Figure A2.800 15 1.400 356 18 2. STATISTICA ﬁles 19 P (Left) M (Right) 2.MF 37.000 16 1. Closing prices of stock and market index 14 0 16 32 48 64 80 96 112 128 144 160 176 192 208 224 240 1.4 Appendix.200 17 2.600 Figure A1. of cases: 246 .

6e6 1. of cases: 246 Figure A3.0010 0.2e6 1e6 8e5 6e5 4e5 2e5 0 260 Stock market risk and price valuation 357 Note: No.0026 VM 0.0002 –0.1.0014 0.0002 0 16 32 48 64 80 96 112 128 144 160 176 192 208 224 240 Figure A4.4e6 1.0022 0. Stock and market volatilities .0006 0.0030 VP 0.6e6 1.4e6 1.2e6 Periodogram values 1e6 8e5 6e5 4e5 2e5 0 0 20 40 60 80 100 120 140 Period 160 180 200 220 240 1. Spectral analysis of market 0.0018 0.

0023 0.0626 0.0 –0.134 +0.0638 0.93 20.0638 0.0638 0.0037 –1.0621 0.0150 0.0638 0.0631 0.67 33.98 5.0 0.055 +0.013 S. 0.0638 0.26 31.161 +0. +0.97 9.1752 0.0027 0.50 30.003 +0.0638 0.0623 0.010 +0. Partial autocorrelation function VP Lag 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Corr.031 +0.0630 0.0638 –1.72 22.0933 0.134 +0.5 0.0617 0.087 +0.5 Note: Standard errors are white-noise estimates Figure A6.0622 0.MF 37.4 358 Figure A5.0638 0.020 S.015 +0.029 –0.79 8.0342 0.0619 0.205 +0.060 –0.0618 0.086 +0.045 +0.074 +0.0 0.027 +0.039 +0.004 +0.0 p 0.5 Q 4.0109 0.98 7.014 +0.48 5.0627 0.077 +0.0632 0.057 -0.0638 0.95 8.E.71 1.0503 0.058 +0.0615 0. Autocorrelation function VP Lag 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Corr.1124 0.1928 0.0629 0.97 23.E.0 –0.0638 0.0638 0.037 +0.0080 0.0 Note: Standard errors assume AR order of k–1 .061 +0.71 33.0068 0. 0.190 +0.73 22.088 +0.0638 0.0026 0.0634 0.0638 0.0638 0.130 +0.5 1. +0.088 +0.1177 0.0625 0.0638 0.

0622 0.0630 0.0440 0.0627 0.0629 0.101 +0.70 24.0 –0.0 0.0131 0.40 11.E.000 0.90 26.0625 0.0618 0.029 +0.0301 –1.001 0.44 23.8029 0.004 Observed 0.44 3.0067 0.046 +0.069 +0.0212 0.0621 0.0224 0. Autocorrelation function VM .069 +0.0615 0.0356 0.54 11.0.052 +0.086 S.0623 0.002 0.030 +0.0000% 0.00 3.21 0.0.0760 0.0) seasonal lag: 12 input VP Lag 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Corr.0619 0.001 –0.004 0.17 22.007 +0.001 –20 0 20 40 60 80 100 120 140 160 180 200 220 240 260 280 Notes: Start of origin: 1.84 1.41 22.42 24.43 22.176 +0.0275 0.5 Note: Standard errors are white-noise estimates Figure A8.0675 0.0 p 0.002 0.20 21.000 –0. end of origin: 246 Figure A7.43 13.008 +0.001 0.3917 0.0632 0.010 –0.0077 0.176 –0.5 Q 0. 0.4712 0.0634 0.6450 0. model: (1.043 –0.003 Forecast ± 90. Forecasts. –0.003 Stock market risk and price valuation 359 0.0631 0.0626 0.083 +0.0617 0.

001 0.0638 0. 0.002 0.029 +0.0638 0.0000% 0.103 +0.002 0.002 Observed 0.0 –1.052 +0.075 –0.0638 0.002 Forecast ± 90. –0.0638 0. end of origin: 246 . Forecasts.078 –0.5 1.0638 0.013 –0. Model: (1.005 +0.0638 0.001 5e–4 5e–4 0 0 Figure A10.0638 0.0 –0.0638 0.070 S.0638 0.E.4 360 Figure A9.MF 37.0638 0.0.0638 0.029 +0.5 Note: Standard errors assume AR order of k–1 0.0638 0.0638 0.107 +0.0) seasonal lag: 12 input: VM –5e–4 –5e–4 –20 0 20 40 60 80 100 120 140 160 180 200 220 240 260 280 Notes: Start of origin: 1.013 +0. Partial autocorrelation function VM Lag 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Corr.008 –0.010 –0.176 –0.0638 0.138 +0.0 0.0638 0.

04 –0.02 –0.04 0. Regression of RP to RM Corresponding author Paraschos Maniatis can be contacted at: pman@sch.02 –0.0.02 0.com/reprints .06 0.03 –0.05 Note: y = 0.02 0.00 –0.01 0.04 –0.00 –0.677 * x + eps Figure A12.com Or visit our web site for further details: www.06 –0. Stock and market returns 0.04 –0.gr To purchase reprints of this article please e-mail: reprints@emeraldinsight.06 0 16 32 48 64 80 96 112 128 144 160 176 192 208 224 240 Figure A11.03 0.02 –0.00 RM 0.emeraldinsight.02 RP 0.04 0.04 Stock market risk and price valuation 361 0.001+ 0.06 RP RM 0.01 0.

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