Expected return

COST OF CAPITAL AND INVESTOR EXPECTED RETURNS I. Cost of Capital (Equity) The cost of capital is the cost of resources used for financing a business. Depending on the method of financing, the cost of capital is financed solely through equity or debt. As a result, many companies use a combination of debt and equity to finance their businesses. Since the cost of capital represents a hurdle rate that a company must overcome before it can generate value, it is extensively used in the capital budgeting

efficiently prices adapt to the publically available information. The third form is concerned whether any given market participants having monopolistic access to the creation of the stock prices. Final Draft – Return Predictability: In short, the new work rejects the old constant expected returns model that seems to perform well in the early work. It is rejected due to such findings as

Next, the second hypothesis will be that, the short-term return of the bidder firm is insignificant and negative. Lastly, the long-term hypothesis will be that, the abnormal return of the acquiring firm is negative or negligibly close to zero. Literature review: Empirical studies examining stock market reaction to M&A announcement find little evidence of wealth creation

duplicated M&As (i.e. present in both databases) (keeping the M&A from Bloomberg since it seemed to be more accurate with the announcement date). The researcher had to eliminate those M&A deals where the acquiring country could not be identified or the returns could not be extracted for one reason or another from Bloomberg. The sample ended up being 443 M&A deals. (107 from Zephyr, 336 from Bloomberg). The difference between this data sample and those of other studies is that this is extracted from two

considered an important theory in financial area. However, the existence of momentum profits has threatened EMH. One typical study in this issue is done by Jegadeesh and Titman (1993). They found that momentum strategy realizes significant abnormal returns in each of the 12 months after portfolio’s formation date. In addition, Rouwenhorst (1998), Doukas and Macknight (2005) and Antoniou et al (2007) confirm the existence of momentum profits in European markets. Liu et al (1999); Hon and Tonks (2003)

acquisition will be used interchangeably. The first hypothesis of this research will be that, in the short run, the target firm would obtain a large positive and significant abnormal return. Next, the second hypothesis will be that, in the short run, the acquiring firm would obtain a small positive and significant abnormal return. Lastly, the

applications in the long history since the first published paper by James Dolley (1933). There are several types of return generated by event study, including observed return, abnormal return and expected return. The methodology and explanation of event study on the wealth effect of spin-offs varies, most of empirical researches are consistent with the positive abnormal stock return of spin-offs for the parent company stockholder. The positive stock gains are associated with the positive expectation

The Relationship Between Risk and Expected Returns According to investment glossaries, a risk is a future probability of loss inherent in any investment (Investopedia Financial Dictionary, 2016). To this day, the positive correlation between risk and return continues to be the cornerstone of financial theory. The basic capital asset pricing model (CAPM) formula is built on this relationship. CAPM provides the required return based on the level of systematic risk of an investment. The risk associated

The Rules of Finance The goal of finance is to find the optimal enterprise solutions that balance expected return and expected risk. We can find and implement the optimal solutions by using financial information, tools, and models. In finance we want to reduce expected risk and increase expected return, but since getting rid of risk entirely is impossible we look for the best combination of the two. Even though a riskless venture is not possible, Harry Markowitz, a talented economist, brought forth

Actual return was calculated for all the companies as well as for the BSE 500 on the event period days (-60 to +60). 3. The expected return for each firm was calculated: Expected Return = Alpha + (Beta x BSE 500 actual return). 4. Excess Return was obtained from the difference between Actual and Expected Return. Excess Return = Actual Return – Expected Return 5. Average Excess Return (for the Event period) was calculated as: Average Excess Return (AER) = Total Excess Return / n (number