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Stock Performance during Tough Times: Evidence from the U.S. Market

ФИО студента: Eduard Sulteev

Руководитель: Dmitriy Alexandrovich Kachalov

Кампус/факультет: International College of Economics and Finance

Программа: Double degree programme in Economics of the NRU HSE and the University of London (Bachelor)

Год защиты: 2018

The analysis of this paper puts its focus on the study of the U.S. equity performance during tough times. Identification of these tough times combines both economic instability captured by National Bureau of Economic Research index and financial downturns captured by falls of stock market index. The sample runs from 1990 to 2016. The companies used for analysis are from the Dow Jones Composite Average, that is, 65 firms in total. Many of the securities’ characteristics observed are said to produce unconditional abnormal returns but this does not serve as prerequisite for inclusion. The issue is when such returns are produced. In this perspective, size, value, profitability, risk and liquidity parameters captured by various ratios and estimators are analyzed. Illiquid stocks and stocks with lower total volatility are revealed to perform well during bad times but otherwise underperform, while value and profitable ones show relatively stable average risk adjusted performance. This paper develops an easy procedure of returns risk adjustment in a state-contingent manner that places a higher weight on the return achieved during bad times. Finally, the author builds a specific characteristic-based portfolio that occurs to minimize underperformance during identified periods of instability.

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