Laskentatoimen ja rahoituksen yksikkö, 2018
Laskentatoimi ja rahoitus
Master's Degree Programme in Finance
This master's thesis focuses on whether the company's quality measured by profitability affects its yield and risk in the Finnish Stock Exchange 2009-2017. In other words, can portfolios formed by gross profitability and Ebitda/TA yield better than market. Every year, I rank all OMX Helsinki companies in order of both quality metric. The top 30 percent of the companies are selected in to the Long-portfolio and the bottom 30 percent are selected in to the Short-portfolio. In the United States, studies focusing on profitability strategy have come up with surprising results that challenge traditional investing strategies. In Finland, the topic has not been extensively studied.
The empirical results indicate that gross profitability and Ebitda/TA portfolios clearly outperform the market index. The average annual return for the gross profitability portfolio is 19,23 % and for the Ebitda/TA portfolio is 21,11 %, while the market index produces 16,12 % on average during the sample period. Additionally, both quality portfolios’ Sharpe-ratios are higher than the Sharpe-ratio of the market portfolio. The result is statistically significant for Ebitda/TA portfolio, which generates 4,64 % annual alpha, but not for the gross profitability portfolio after controlling risk adjusted methods such as Fama French five-factor model.
Quality investing, profitability, OMX Helsinki, Fama French five-factor model