Date of Award
Master of Science (MS)
Economics & Finance
This thesis examines how a firm’s level of operating profitability and investment impact expected stock returns in diverse economic environments. Using time-series regressions in conjunction with dummy variables to represent different economic environments, the analysis measures the impact of specified market conditions on expected stock returns. The results confirm findings from existing literature that stock returns from profitable firms with lower levels of investment outperform those from less profitable firms with higher levels of investment. In an economic environment analysis, this thesis finds investment behaves as a traditional risk factor, but profitability can provide an investor a valuable hedge during adverse market conditions. Lastly, portfolios are constructed that employ the findings in the analysis to illustrate the advantage an investor has by using an investment strategy consistent with this analysis.
Parks, Eric, "Operating Profitability, Investment And Finding Alpha In Diverse Economic Conditions" (2016). Theses and Dissertations. 2060.