Use data from finance

Subject:BusinessPrice: Bought3

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Use data from finance.yahoo.com to answer the following questions:

1. Collect the following data for ten ?rms of your choosing.

• Book-to-market ratio
• Price-earnings ratio
• Market capitalization (size)
• Price-cash flow ratio (i.e., market capitalization/operating cash flow)
• Another criterion that interests you.

You can ?nd this information by choosing a company and then clicking on Key Statistics. Rank the ?rms based on each of the criteria separately, and divide the ?rms into ?ve groups based on their ranking for each criterion. Calculate the average rate of return for each group of ?rms.

1. Use the price history from the Historical Prices tab to calculate the beta of each of the ?rms in part (a). Use this beta, the T-bill rate, and the return on the S&P 500 to calculate the risk-adjusted abnormal return of each stock group.
2. Now form stock groups that use two criteria simultaneously. For example, form a portfolio of stocks that are both in the lowest quintile of price-earnings ratio and in the highest quintile of book-to-market ratio. Does selecting stocks based on more than one characteristic improve your ability to devise portfolios with abnormal returns? Repeat the analysis by forming groups that meet three criteria simultaneously. Does this yield any further improvement in abnormal returns?