FINANCIAL MARKET INVETMENT ANALYSIS
(MBA-S3, June 2014)

Teacher’s Name: Dr. Vijay Shenai

Submitted by: SOHAIL BAJWA
Student ID: C0395KKKK1013
Company Allocated for the Assignment:
Experian PLC

Total Words: 2,211
(Excluding Reference List &Appendixes)

TABLE OF CONTENTS

INTRODUCTION: 3
A- Market Model and Its Implications 4
Interpretations of Experian PLC Regressions Results 5
Sector Regression Analysis 6
Interpretations of Sector Regressions Results 6
B- Equity Market Risk Premium 7
Calculation of Market Risk Premium 8
Yield Curve 9
Importance of Yield Curve 9
C- Computation of Return of Company and Sector by CAPM 10
D- Comparison of Actual Return with CAPM Results 10
Critical Analysis of Efficient Markets, …show more content…

R^2
It is the extent to which model explains the data. It should be over 30%, here it is 76%, which means that 76% movement in Sector (NMX2790) is due to FTAS.
Significance of Coefficients
Under the Null Hypothesis each coefficient is 0. Here two Coefficients have p value less than 0.05, so Null Hypothesis is rejected for those two coefficients. It means the coefficient of FTAS Weekly Return (beta) and the Intercept (alpha) are significant while the other coefficients are not different from 0.
Sector.R (alpha)
0.0021
FTAS.R (Beta)
0.9490
P Value
0.10
P Value
0.0000
R^2
0.76172
F Significance
0.0000

B- Equity Market Risk Premium

Equity market risk premium is the additional rate of return on equity that passive investors required as compensation for holding riskier stocks as compared to holding of a risk free asset. Another reason, investors required this, because equity holders are at the end of business cash claimant line in case of liquidation. The higher the riskier asset is, the higher will be the rate of return.
One common worldwide equity risk premium assumption is 6 % (Millar, 2013), particularly in UK it is estimated about 8-9% over long period of time. Government Bonds are usually considered Risk Free due to the extreme unlikelihood that a government may get defaulted in debt repayments.
Figure 1: UK Equity Risk Premium

Calculation of Market Risk Premium

It is considered that market risk premium is the price of taking risks; hence, it is key