Predictability of Market Returns Using Book To Market Ratio

PREDICTABILITY OF MARKET RETURNS USING BOOK TO
MARKET RATIO
Abstract
This particular topic is about predictability of market returns using book to market ratio. This
particular ratio is used to calculate return rate from those indexes listed in the S&P 500 index.
Detail data of the history of S&P 500 index starting from 1926 to 2013 have been collected by
the researcher to find out the return and index prices to find out the fluctuations of prices of the
indexes over these years.
The researcher made a detail review of literature to elaborate the related facts of return from
market. The return from dividend and return from Book to market ratio has been compared to
determine the changes in rate of return from these two variables. The researcher has also
elaborated the various macroeconomic factors that affect the return rates. The macroeconomic
factors and the way how these factors have an impact on the return from the indexed companies.
Relation between Book to market ratio and future returns from these listed companies are also
discussed in the review of the literature.
The researcher has also described the reasons for choosing book to market ratio as the variable of
return from the different indexed companies. The difference in returns from dividend and book to
market ratio is also elaborated. Actually, returns from book to market ratio calculates future
return based on the present market value of shares. The positive and negative side of book to
market ratio is also discussed in this research.
The researcher used research onion to describe the philosophy, design and approach of the
research. In this research, the researcher has used analytical design, deductive approach and post
positivism philosophy.
This research is completely based on secondary data. The researcher gathered the appropriate
and authentic data from different available sources. The researcher used these data in proper way
without any bias and implemented the data where required. These collected data is represented in
tabular and graphical manner and interpreted results based on the findings. The researcher also
analysed the data in the best possible manner. Graphs are prepared for analysing different factors
like profitable and loss making industries and calculations of mean and standard deviation of
these listed industries are made.
At the end of this research, the researcher has provided detailed conclusion about the
predictability and applicability of book to market ratio. The conclusions and recommendations
are provided by the researcher as per as the problems present in the usage of Book to market
ratio. The recommendations are provided to bring improvements in certain negative aspects of
book to market ratio. The researchers also described the limitations and the problems faced
during the research work. The researcher has kept scope to carry out research on this particular
subject i.e. prediction of market returns by using book to market ratio in the future.
Acknowledgement
I would like to thank my teachers and professors for their tremendous and continuous support to
complete this difficult research job. I am thankful to my research guide for his guidance in this
research. Without the help of my guide, this research would have been difficult to complete. I
would also thank my family members, friends for their unconditional support and motivation.
My friends and family members influenced me a lot to make progress in this difficult research
journey. Without the help and guidance of these people, this research would have remained
impossible.
Thank You
Yours Sincerely
________________
Table of Contents
Chapter 1: Introduction and background........................................................................................6
1.0 Introduction................................................................................................................................6
1.1 Background of the Research......................................................................................................6
1.2 Rationale of the Research..........................................................................................................7
1.3 Research Aim.............................................................................................................................8
1.4 Research Objectives...................................................................................................................9
1.5 Research Questions....................................................................................................................9
1.6 Research Hypothesis................................................................................................................9
1.7 Significance of the Study...........................................................................................................9
1.8 Structure of the Dissertation....................................................................................................10
1.9 Summary..................................................................................................................................11
Chapter-2 Literature review...........................................................................................................12
2.0 Introduction..............................................................................................................................12
2.1 Previous research works:.........................................................................................................12
2.2 Conceptual framework:...........................................................................................................13
2.3 Relation between market returns and book to market.............................................................13
2.4 Macroeconomic environment affecting stock returns predictability.......................................15
2.5 Fundamentals of Book to Market ratio....................................................................................21
2.6 Relationship between Book -to market ratio and future return...............................................22
2.7 Elaborating the difference between the returns based on Book to Market ratio and Dividend
payment..........................................................................................................................................22
2.8 Reasons for choosing Book to Market ratio............................................................................23
2.9 Positive features of Book to market ratio................................................................................24
2.10 Negative features of book to market ratio.............................................................................25
2.11 Comparison between previous research and existing research work:...................................25
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2.12 Summary:...............................................................................................................................26
Chapter-3: Research Methodology................................................................................................27
3.0 Introduction..............................................................................................................................27
3.1 Method Outline........................................................................................................................27
3.2 Research Onion........................................................................................................................27
3.3 Research Paradigm/Philosophy...............................................................................................28
3.3.1 Justification for selecting positivism....................................................................................29
3.4 Research Approach..................................................................................................................29
3.4.1 Justifying the use of Inductive approach..............................................................................30
3.5 Research Purpose.....................................................................................................................31
3.5.1. Justification for Analytical Design......................................................................................31
3.6 Research strategy.....................................................................................................................32
3.7 Methods of Data collection......................................................................................................32
3.7.1 Secondary data collection.....................................................................................................32
3.7.2.2 Qualitative Data collection................................................................................................32
3.8 Secondary Data Analysis.........................................................................................................32
3.9 Ethical considerations..............................................................................................................33
3.10 Time schedule considered to perform research (Gantt chart)................................................33
3.11 Summary................................................................................................................................34
Chapter 4: Data analysis and Findings..........................................................................................35
4.1 Introduction..............................................................................................................................35
4.2 Critical evaluation of the issues related to the market returns of the S&P 500 indexes under S
& P 500 indexes.............................................................................................................................35
4.3 Secondary Data Analysis.........................................................................................................55
4.4 Summary..................................................................................................................................56
Chapter 5: Conclusion and Recommendation...............................................................................57

5.1 Conclusion...............................................................................................................................57
5.2 Linking objectives with Findings and review of literature......................................................57
5.3 Recommendations....................................................................................................................59
5.4 Limitation of the research........................................................................................................60
5.5 Future scope of the research....................................................................................................61
Reference list.................................................................................................................................62
Appendices:...................................................................................................................................67
Appendix 1: Graph showing the correlation and beta of S&P 500 (1900-2010)...........................67
Appendix 2: Graph showing the credit position of S&P 500 and Hedge funds (1990-2010).......67
List of Figures
Figure 1: Dissertation Structure.....................................................................................................14
Figure 2: Conceptual framework...................................................................................................17
Figure 3: Research Onion..............................................................................................................32
Figure 4: Research Philosophy......................................................................................................33
Figure 5: Research Approach.........................................................................................................34
Figure 6: Research Design.............................................................................................................35
Figure 7: Graph showing the growth rate of the profitable industries for the last 1 year to present
.......................................................................................................................................................44
Figure 8: Graph showing the growth rate of the profitable industries for the last 1 year to present
.......................................................................................................................................................48
Figure 9: Graph showing the trend of growth and decline of the related industries.....................51
Figure 10: Graph showing the index of S&P 500 index from 1926 to 1966.................................55
Figure 11: Graph showing the index of S&P 500 index from 1968 to 2013.................................58
List of Tables
Table 1: Gantt chart........................................................................................................................38
Table 2: Table showing the growth of the profitable industries of S&P 500 Index.......................41
Table 3: Table showing the statistical data of the profitable industries listed in S&P 500............43
Table 4: Table showing the decline of the loss making industries of S&P 500 Index...................47
Table 5: Table showing the statistical data of the loss making industries listed in S&P 500........49
Table 6: Table showing the decline of the loss making industries of S&P 500 Index...................53
Table 7: Table showing the statistical data of the loss making industries listed in S&P 500........55
Table 8: Table showing index, book to market and dividend yield of S&P 500 indexes (19261966)..............................................................................................................................................60
Chapter 1: Introduction and background
1.0 Introduction
According to the statement of Basu (2008), the market returns can be defined as the return in the
capital investment in terms of stock market. Market return can be return from trading or can be
dividends provided by a company at regular basis to its shareholders or the market holders out of
the profits earned by the company in the particular part of a year. Market returns can be
evaluated through the dividends provided by any certain firm or company in every quarter of the
year in which the company making the profits usually shares a certain portion to the market
shareholders to gain more profit as a return (Barber and Lyon, 2010). These are never fixed and
are very dependent on the market and its current values. The market return changes from
holders-to-holders of the market investors depending on the market risks that further depend on
the market analysis.
The book-to-market ratio is the ratio, which can be evaluated to compare the book value of a
company or a firm by comparing its return value with the current market value. By doing this,
the company can have an idea of its stock value in the market. This research will evaluate that
stock market value and returns by comparing it with the current scenario in the USA Stock
Market. Jiang and Lee (2007) opined This research is based on the predictability of the market
returns using book to market ratio that is frequently used by the investors of those companies
listed in S&P 500 index. This ratio helps to find out how much return a particular index can
provide to the investors in future in contrast of the present index price.
1.1 Background of the Research

According to the finds of Basu (2008), the Predictability of a stock market is evaluated by the
future stock prices using various statistical tools, charts and focusing on price movements.
Return profitability is also dependent on the pattern of investment made by the investors and the
capacity to take make investment in those shares bearing high risks. According to Darner (2008),
market returns are highly dependable on the market risks, which could be positive or negative as
a return. Nowadays, there are some derivative instruments that are used to maintain a graph,
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related to the up down of a market ratio in a regular basis. These instruments help the investors in
hedging which informs the company about the reduced risks associated with the market.
According to Jiang and Lee (2007), Different corporate sector companies are using these tools in
order to gauge their stock market values and to evaluate the ratio by using the book-tomarket
ratio so that the company can have a predictability of the market returns. This particular topic is
chosen by the researcher to find out the reason why calculations of returns using Book to market
ratio failed in recent times. Alaska (2010) opined book to market ratios have provided nearly
exact results regarding the return, but since the major crisis in the stock market, the predictions
have turned negative.
1.2 Rationale of the Research

What is the research issue?
The issue in this research is about the positivity and acceptability of Book to market ratio
regarding return predictions. Fama and French (2015) sated returns from companies listed in
S&P 500 have changed at present. Previously, this ratio used to make nearly accurate predictions
but in recent times, majority of these predictions have turned out to be negative. The high stock
return issues of a certain corporate firm trigger the equity issues in the stock market that are
mainly driven by the consideration of the market timings. The issues are regarding equity shares
of the companies listed in S&P 500 index. According to Griffin and Lemmon (2009), returns are
flexible in case of equity shares and that has created the problem regarding return after the
recession. It mainly arises when there is an issue in stock markets through various accessibilities
to the capitals and the investors based on the gains that the company would avail in the future
market. The equity problem generates the legitimate certainty about the survival of the current
economic system of a certain corporate company. This problem strongly responds to the spikes
of the corporate sector holdings, which will significant to the relation of the existing share or
market holders.
Why is it an issue?
It is an issue for the certain company, which is facing the equity problem because the company
relatively gives the compensation for the higher rates to the market equity. This makes an
organization far less guaranteed which, in worse, results in the downturns. Lam (2009) stated that
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companies unable to operate without investment have to shut down its operations fearing losses.
If proper returns are not received, investors also prefer to stay out from making investments. A
risk free market generate the trust and bonding of the company in future for a long term basis as
because of the low chances of downturn in the income of the company that follows a certain
pattern in the return of the market stock prices. Suppose the market return of a company is 15%
for a certain year and the risk free rate over that particular period of time is 6 % , then, the equity
risk will be 9% for that in that year.
Why is it an issue now?
It is an issue now because as per the equity risk premiums in the market, a company can certainly
understand the existence of a company in the future market. Thus, it puts the company to invest
in high risk to cover up the compensations, which is to be given to the market holders for the
loss. Thus, the equity problem is an alarming issue for the company because it can be a profit for
some firm by giving high stock returns. Lau et al. (2009) stated in addition, in few firms, it can
be a huge loss where the firm needs to cover up compensations, which takes place with the issue
in the market.
What could this research shed light on?
This research sheds lights on predictability of stock market returns in comparison to the current
market scenarios of the USA stock market. Using Book to market ratio and the issues and
challenges any corporate firm listed in S&P 500 faces related to the stock returns are easily
understood. The researcher has taken the help of secondary research to understand the challenges
and issues that any investing firm faces from the different market returns by providing certain
recommendations and suggestions in order to resolve the challenges.
The purpose of this research is to find out predictability of market returns and its effectiveness
and acceptability among the investors. Book to market ratio has lost its effectiveness regarding
prediction of positive returns.
1.3 Research Aim

The aim of the research is to find out the predictability issues of the market returns by using the
book to market ratio in which the return defines the amount, which is received by market holders
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as a return of their capital investments in terms of profit or loss. It is the return, which is
generated by stockholders or the market holders out of the market. It is to evaluate the empirical
results, which are consistent with the market capitals in an efficient way.
1.4 Research Objectives

The researcher is going to conduct the study in order to meet the following objectives:
To critically evaluate the issues related to the market returns of the different firms in
related to the industry in context to the market value.

To suggest the suitable recommendations to the firms to solve the related issues related
to the ratios of the market value
1.5 Research Questions

The researcher looks after the following list of Research Questions:
How efficiently the does the predictability of the market returns has an impact to the
certain firms for boosting up the market ratio?

What are the issues related to the market returns of the firms while using the book to the
market ratio?
1.6 Research Hypothesis

H0: Market ratio is important for the predictability of the market returns
H1: Market ratio is not important for the predictability of the market returns.
1.7 Significance of the Study

The study, which has been done by the researcher gives the importance of the market, returns in
terms of the market ratios in the stock market analysis. The market returns provides the company
about its existence in the future and the company gets an idea about the next investments.
Investments are done by calculating the current market values by using the book to market ratio.
In fact, the company year turn over depends on the stock market returns as because of the equity
market, which gives the company a profitable return or at times, the loss. Therefore, the stock
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market returns is a calculation chart, which helps the company to maintain its business with the
market values and returns. This entire research can be helpful for the learners in future those,
who are willing to further carry out this research. The issues that have been determined by the
researcher and the recommendations suggested according to the issues will help the corporate
companies to resolve the problems faced in the USA market. These suggestions if followed can
give the companies a better future.
1.8 Structure of the Dissertation
CCC hhaphaph apter

ter
1
2
ter
3
4
a p te r 5
Figure 1: Dissertation Structure
(Source: As created by author)
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1.9 Summary
The entire chapter focuses on the creating the backbone of the study which is based on the given
topic, which is, determine by the rationale taken for the research. The dissertation has been
conducted based on the research points. The entire dissertation gives a clear objective based on
which the researcher works accordingly. The researcher further looks after the objective and
questions of the research, which can be further taken by the certain corporate companies to
resolve its existing issues. The body of the dissertation is clearly described by the structure of the
dissertation drawn above by the researcher, which is elaborated in the next coming chapters. By
taking the reference of the market ratios and market values of few corporate sector companies,
the research has been done to evaluate the predictability of the market returns.
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Chapter-2 Literature review
2.0 Introduction
The term literature review is the entire representation of the subject on which a research is to be
carried out. Review of the literature needs to be inclusive of the present knowledge of the
analysis of findings along with proper uses of the related methodology. This particular research is
about the predictability of the market returns using book to market ratio. For making a proper
review and completing the entire research in the most effective manner, the researcher has
identified the related theories and carried out proper analysis on these theories and models. It is
necessary to posses usual knowledge about means of return from stocks have been used and the
application of book to market ratio to make a prediction about the return.
The entire research is about the prediction of return provided by the companies by using book to
market ratio. The usage of Book to market ratio is one of the major means of calculation of
returns received from the shares listed in the S&P 500 index. Yau (2012) stated in USA, the
usage of Book to market ratio is one of the mostly used return predictability calculation done by
investors for S&P 500 index.
2.1 Previous research works:

Previously research on this particular topic has been carried out and those researchers made
analysis of the present data and the theories. As per the views of Walford (2008), researchers
have explained how rate of returns have differentiated with prior difference in the level of risks
involved. The inclusion of the different types of pricing models was also included regarding
finding out the returns. Kellermann et al. (2013) opined that book to market ratio have the
prospective of identifying the portfolios having capacity to produce higher rate of return.
Alongside, this calculation has also produced negative results in some cases. Previous researches
have tried to explain the effect of available market risk changing the returns in future.
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2.2 Conceptual framework

Macroeconomic environment affecting stock returns predictability
Fundamentals of Book to Market ratio
etail analysis of the macroeconomic factors that changes

Relationship
rate of return
between Book -to market ratio and future retu
Relation between market returns and book to market
Figure 2: Conceptual framework

(Source: As created by Author)
2.3 Relation between market returns and book to market

Returns generated by the investors in the stock market are call as market returns. Return can be
in the form of profit through trading or in form of dividends given by company to the
shareholders. Market returns are not fixed and are subject of market risks (Yau, 2012). The term
market return is defined as the rate of the return that is going to be earned in the course of the
entire investment that has been made in favor of the company. The rate of the return has been
collected and counted for the span of the years like 5 or more. According to Nguyen and
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Schuessler (2014), investors generally find out the rate of return for a long period of time. The
reason behind doing so is to find out the financial stability of the company for the last few years.
There are different types of the return like the average return; it is the return that the company
has provided for the period of the last 3 to 5 years. Parigi et al. (2013) discussed it helps to find
out the status of the profitability or the loss that the company has been incurring in the following
years. The other type of return is the index performance return where the price of the bonds
issued by the companies is taken into account during the different parts of the year. Here, the
quarterly performance rate is taken into account. According to Gulen et al. (2011), the other type
of return that is available in market for the investors is the historical return. In this type of return,
the rate of the return that has been provided by the particular share for a long period of time is
taken into consideration. By dividing the year in to 3 parts the rate of the return provided in the
3rd, 6th and the 12th month is generally taken into account. Liew and Vassalou (2009) noticed rate
of return for every company is listed in the stock index. The price of the share is calculated on
the basis of the price of the share per $100. In this particular method, the rate of the return is
measured in the terms of the T-Bills, Stock Bills are taken into account, and the entire rise and
the fall of the share prices are found and are published in the share option market.
Book to market is the ratio that is calculated by the firms and the investors to find out the market
value of the shares in the current or the upcoming years. As per the views of Nguyen and
Schuessler (2014) while making the calculation of the book to market ratio, the value of the
shares of the company is taken into account. The method of finding the entire value of the shares
is done through the process of capitalization. For this purpose, the market and the book value of
the firm is taken in to account. Edwards et al. (2013) described factors like the market returns
and the book to market has a close relationship as both the factors have the common connection
of depicting the return that the particular bond is going to deliver. According to Somekh and
Lewin (2011), the general concept of the factors is to provide the return rate, so that the company
is able to make the prediction in relation to the return that the company is going to get and the
future of the investments that the company might have or make the loss in respect to the present
year. Parigi et al. (2013) stated from these calculations, the stakeholders of the company will be
aware of the position of the company in terms of the financial condition and the shareholders of
the company will be able to predict the return on the invested money.
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2.4 Macroeconomic environment affecting stock returns predictability

According to Yau (2012), macroeconomic environment factors which affect stock return
predictability are like inflation, money stocks, aggregate output, interest rates, and ratio of
consumption to wealth and unemployment rate. As per the views of Alaska (2010), each and
every economy is build up with the twin factors of Micro and macro economics. The micro
economics is oriented towards the benefits and the limitations that the individual or the working
bodies like the private and the public concerns. Piotroski (2007) noticed that macroeconomic
factors of the economy is driven towards the return of the stock and the benefits and the
problems that the shareholders are about to receive in the following years. Darner (2008) opined
macroeconomic factor of the economy is inclusive of the key factors like discrimination of
product prices, conditions of different markets, and rate of investments and amount of savings
that the company is going to receive is considered to be the factors that have the potential to
affect the rate of the return in the favor or against the company along with the considerations of
the other market influencing factors.
As per the views of Harrison et al. (2011), various macroeconomic factors that play an important
role in regarding the rate of the returns from the investment are the rate of unemployed people,
fluctuating rate of the interest output of the different types of materials that has been produced in
the entire economy during the particular financial year and the rate of blockage stocks in the
economy along with rate of confidence of buyers across the economy regarding the performance
and usage of particular type of products. Onwuegbuzie and Leech (2009) opined different factors
and role of factors regarding rate of returns of various stocks are discussed as follows:
Rate of Unemployment- Unemployment rate of a country determines the strength of the entire
country regarding the financial and the profit earning status of the economy. Truscott et al.
(2010) noticed huge rate of the unemployment count states that the economy is rather weak in
terms of the performance especially in the sector of the economic development and also states
that the internal strength of the economy is poor regarding the criteria of creating opportunities.
According to Yau (2012), high employment demonstrates that the internal functioning and the
progress of the business cycle are favorable in all aspects.
Fluctuating rate of interest- The higher rate of interest demonstrates that the economy has been
in the downward side in terms of the performance. According to the views of Vargas-Hernajndez
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(2012), lower rate of interest means that the economy has been able to recover all the debts and
no more further debts are to be made by the country to meet all the internal financial affairs.
When the rate of the interest is higher it demonstrates that the economy has got shortage of the
liquid money to meet the obligations.
Production- As stated by Walford (2008), production of different types of materials in the
particular year. In general, the production or the rate of the output depends on the factors like
demand of the products, and the diverted rate of the returns and the factor of income
determination and when the investors are willing to receive the nominal earning for the purpose
of making loss in the course of the investment.
Detail analysis of the macroeconomic factors that changes rate of return
Inflation: Inflation is defined in economics as an increase in the pricing level of goods and
services for a certain period of time. The relation between return and inflation is one of the most
debatable issues in academy. Available information regarding the future values of inflation is
shown on the nominal rate (Cenesizoglu, 2011). As there is a strong connection between
common stock return and inflation, it can be used to predict the future. There are several reasons
for the occurrence of inflation in the economy. Inflation is termed as the phenomenon, where
prices of the goods produced and sold within the limits of a country increases. As per the views
of Parigi et al. (2013), Inflation can also take place when, usage of money becomes lower than
the rate of the existing amount of money and supply of money to people of a particular country.
In case of increase in the level of the price, the buying power of the currency gets lower than
before. Piotroski (2007) opined that Inflation is harmful for a country and also to the residents.
The situation when people are unable to consume goods with a certain percentage of money, it
indicates that the value of that currency has fallen.
Inflation makes the situation worse regarding making investments. Actually, when the value of a
currency falls, the investment will bring less return in context of the amount of money invested.
The rate of return can vary up to a large extent due to inflationary factors. According to Adam
and Goyal, (2008), economic experts, the main reason of inflation is due to higher rate of unused
liquid money in the entire country. Barber and Lyon (2010) noticed in this situation, the price
chart of all the materials keeps increasing and the capability of the buyers to buy a particular
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product keeps falling. In economic terms, there are two types of inflation- demand push and cost
push. Though inflation is harmful for an economy, there are few ways to control inflation. The
ways to fight inflation are
Controlling the rate of free supply of money

Controlling prices of materials having high demands
Keeping the payments of the workers in different sectors unchanged
Government initiatives like increasing tax rate and interest rate to stop the rate of demand
(Amit and Livnat, 2008).
Money stocks: The relationship between common stock and money has got a considerable
attention for a long period of time (Menzly and Ozbas, 2010). The increment in money supply
tends to increase the common stock price. Cenesizoglu (2011) indicated that money stock has
explicit power. Money stock has both in-simple power and out-of-simple predictive power in
different countries. The term money stock means availability of assets in an economy during a
specific period. The relation between the stock of money and rate of inflation is quite interrelated.
As per the views of Dennis et al. (2009), in cases, when the rate of money supply is higher, the
price becomes higher due to minimum usage of money for purchasing any product. To ensure
that an economy is not affected by inflation, the central banking institutions must check the
supply of money. As money is used to purchase the majority of items available, the other
mediums of purchase (like costly metals) are not considered for causing inflation.
Curcio et al. (2003) opined that major impact in the price level of all commodities sold is caused
by money supply in that economy. Not only liquid or usable money, the amount of money saved
in bank accounts are also regarded as money supply. The rate or amount of money supply is
decided by FRP (Federal Reserve Policy) in USA. Lam (2009) opined these different types of
money are described as M0, M1 depending on the pattern of the money hold. Another term used
frequently regarding the convertibility of the currencies is Narrow Currency- these can be
transferred in to cash at any moment as per need of users and account holders. When supply of
money is less, people borrow money by paying higher rates of interest and thus people keep
away from investing. According to Nguyen and Schuessler (2014), less amount of investment
will make companies to stay away from investing and thus the rate of operation of the companies
become lower and the return to the investors are also less.
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Aggregate output: There are two types of approach which try to explain the relationship
between returns and aggregate output. According to Yau (2012) first explanation evaluated that
common stock returns and output are related through maturity premium. The second explanation
is based on two theoretical models. They are mean of reverting output and life-cycle payment
income hypothesis. Piotroski (2007) stated the definition of the term aggregate output is the net
quantity of the materials produced and is ready to be supplied in the hands of people for usage.
When particular products are ready to be used by the people, and demand for those products are
high, it makes an indication that the economy is all set to be enjoying a positive growth factor.
According to Cameron (2009), in normal economic sense, when the rate of goods produced in an
economy during a particular period of time is higher, it can be said that the country is showing all
the signs of better performance. When the factor of GDP is taken into consideration, the market
price of the products is taken into consideration. As per the statement of Menzly and Ozbas
(2010), when a product is manufactured and sold inside the boundary of the country, the services
provided by the residents of the country is measured and at the same time, destruction caused in
the natural resources of the country is also taken as a harmful factor. Zhang (2013) opined total
output, which is also termed as aggregate output is defined as the total amount of the goods
produced without destroying the valuable resources of the economy or the country.
Interest rates: There are two important research investigation related to the relationship between
interest rates and returns on common stocks. First takes interest rate as good proxy for the
expected inflation and use them to analyze the relation between returns and inflation. Second
investigation reveals that variation in stock is tracked by a default premium variable and a term
premium variable, which are formed from interest rates. Walford (2008) stated that interest, is a
common term used in the section of lending or borrowing money from different sources like
financial institutes or from non financial bodies. The term interest means that additional amount
of money that the borrower needs to pay to the lending body (financial and non- financial
institutions and even to person) in addition to the principle sum.
According to the views of Kang et al. (2010), rate of interest depends on the condition of an
economy. When the economy is in better financial state, the rate of the interest is generally lower.
It signifies that the flow of money or the availability of money is adequate in the hands of the
people. When people have adequate money in hands, normally the rate of borrowing is less. This
22
indicates a healthy economy. Cenesizoglu noticed (2011) when people have less amount of
money in hand or is unable to make use of money, people becomes prone to borrow money to
meet demands. In this type of situation, the lending institutions also charges higher rate of
interest. Piotroski (2007) stated that banks charge higher rates of interest when the economy is in
shattering condition and is running out of money. In situations of economic downswing, the rate
of the interests is quite higher and the well developed economies always maintain a check in the
rate of interest for controlling the inflation rate.
In case of increasing the rate of investment in the economy, the rate of interest is lowered by the
banks (central Banks) of the country to attract people towards making investment. According to
Kellermann et al. (2013), fluctuation of rate of interest in an economy especially in
macroeconomic factors of the country, it can create a situation, where the price of the shares can
get raised by high amount. Excessive rate of credit can also increase share prices.
Ratio of consumption to wealth: Aggregate consumption, asset holdings, and labor are
interconnected. They may deviate from each other for short periods and they can be used to
predict stock market variations for a short period of time (Cenesizoglu, 2011). In economical
context, the consumption of wealth is confined to the amount of the asset held during the
particular year. This ratio is used to measure the rate or amount of return that owner of these
wealth is going to get from these wealth. According to Jiang and Lee (2007), the wealth
possessed by human is not confined to the wealth, generally termed as fixed assets like building,
land or any valuable or costly metals like gold, silver etc. The assets are also in the forms of
different securities or bonds issued by the government or the different investment tools like the
commercial papers. Fama and French (2015) opined it is seen that the rate of the expenses made
by people is higher when the wealth in hold is higher. When the discussion is about the wealth
consumption by human, there are two types of wealth, persisting in the frame of the human
wealth. These two types of wealth are financial wealth and the wealth related to housing.
According to the studies of Basu (2008), people of USA are prone to increase expenditure in
accordance to the increase of wealth consumption.
When the wealth consumption ratio is considered in case of making investment in share market,
it is concluded that people having more wealth in hand do have the opportunity to increase the
rate of investment. Curcio et al. (2003) opined in actuality, the rate of the investment is
23
dependent on the capacity of the investors. When the investors have the capacity as well as
financial power to invest, these people have the capacity to bear the involved risk of the market,
investment rate increase at a higher rate.
Unemployment rate: Employment rate, unemployment rate, work hours, and hourly earnings
affect the stock marketing enormously. Zhang (2013) indicates that there is a statistical
significant relationship between unemployment and returns. The level of employed and
unemployed people is a factor that makes the rate of the investment higher and lower. In
countries where the rate of employment is higher, it suggests strength of the economy.
According to Dennis et al. (2009), it is found, that if the rate of unemployed people is more in an
economy, it suggests that the economy is not progressing. Rather it demonstrates that the
economy have some problems in the financial and the operational structure. According to the
investors, the economy that has huge rate of unemployed people suggests weaker economic
situations and signifies that full utilization of the resources especially human factors have been
lower than usual. According to Barber and Lyon (2010), unemployment and economic recession
has a common link. In most of the situations it has been observed that countries that are affected
by recession have not been able to employ more people and the generation of working
environment is lower. When there is a higher rate of unemployment or companies indulged in
leaving out more workers, it suggests that unfavorable condition of the economy is showcases
and it is totally non advisable to invest in this scenario.
As per the views of Penman et al. (2009), for last few decades, it has been noticed that due to
unemployment the share prices have fallen. The rate of the investment declined as the investors
found the economy unfit to make investment. In case of S&P 500 index it was seen that rate of
the investment was affected during the periods of low rate of unemployment. During this type of
economic conditions, the investors choose not to invest due to the fear of getting minimum return
as the price of the shares keep on rising. According to Piotroski (2007), during this type of
situations, the investors and the share market holders are unable to realize the factors that would
uplift the economy and prefer not to take any risk regarding investing in the companies. In this
type of situations, the risk factor becomes high and the preference of shareholders are mainly on
the shares that has lesser risk but are going to yield less profits. Lau et al. (2009) argued that less
risky bonds are preferred due to the factor that the investors do not face the situation of making
24
losses and do not get adequate return as well as losing the principle amount of the invested
money.
According to Griffin and Lemmon (2009), after making a brief and detailed study of these
macroeconomic factors that changes the rate of the interest of the investments made in favor of
the companies. These macroeconomic factors do play an important part in determining the rate of
the interest and rather to say specifically rate of returns from investments. So, before making any
investment, investors make a close study of these macroeconomic factors and then take the
decision regarding making investment. Lau et al. (2009) opined when Book to market ratio is
considered by investors regarding return, it is observed that most of the times have the results are
in negative values. It states that maximum number of negative returns from S&P 500 index over
the last few years have resulted in decreased number of investments. Actually Book to market
ratio is about calculating the rate of return in future from a particular index after comparing the
present book value of the index.
2.5 Fundamentals of Book to Market ratio

In USA, the book to market ratio is considered as one the mostly used and better consideration
factor of the book to market ratio. Piotroski (2007) argued that choice of investing depends on
book to market ratio of the different industries listed in the S&P 500 index. The rate of book to
market ratio is considered as an important parameter before investing. The companies having
higher book to market ratio, is considered to be inexpensive for investing.
According to Avery et al. (2011), while making an investment, the first and foremost criteria
checked by investors are return rate and the level of profitability that a particular index is going
to fetch in future. The main contrast is made between the present price of the index and what the
price will be after a certain period of time. Before investing, the investors always check the
category of the indexes. The stocks having higher rate of growth in the recent years, is mostly
preferred by the investors. Walford (2008) noticed that measurement and prediction of risks
involved in the stocks are also considered by analyzing the book to market ratio.
It has been observed that the indexes with low Book to market ratio provide higher rate of return.
The factor of risk is also considered while calculating the book to market ratio. Actually, it has
been observed that the indexes having maximum risks are generally confined towards generating
25
higher rate of return, and can also incur loss in a very less time. As stated by Jiang (2009), risk
factor is also one of the important factors considered by the investors while making an
investment. The main performing criteria regarding the calculation of the change and swing in
the price of the shares are depicted by calculating the Book to market ratio.
2.6 Relationship between Book -to market ratio and future return
The rate of the future generation of return and the Book to market ratio is positively related with
each other. According to Truscott et al. (2010), price of stocks are also indicated and fixed by
taking a look at the book to market ratio. When figure of book to market ratio is low, it states that
share prices will be comprehensively higher. It is just the opposite when book to market ratio is
high and the price of the shares are comparatively lower.
According to Walford (2008), apart from book to market ratio, return rate is also dependent on
the factor of the earning and the profit earned by the company during the operations in that
particular financial year. The companies listed in the S&P 500 index are also rated by different
rating agencies. According to the views of Zhang (2013), the ratings of the companies listed in
the index, and considering the Book to the market ratio of the listed securities, the investors take
decision regarding making an investment in the specific industries. Yau (2012) demonstrated in
recent times, the industries like Information Technology, energy, and the petroleum industries are
the leading player of the S&P 500 index. Returns have been higher of these industries due to the
major success regarding earning of profit. Darner (2008) argued that these stocks are generating
higher returns since the last five years and positive predictions regarding continuation of the
present rate of return has been made for these industries.
2.7 Elaborating the difference between the returns based on Book to Market ratio and
Dividend payment
In general, the investors are to receive the return from the investments made in favor of
companies. The companies also provide returns to the stakeholders out of the profits earned. This
excess return provided out of profit is termed as dividend. Book to market ratio is also the
parameter to find out the return amount but in a different way. According to the words of
26
Onwuegbuzie et al. (2009), book to market ratio is used to find out the returns from the indexed
shares comparing to the present value of the index at present.
The rate of return when calculated by using Book to market ratio and dividend payout ratio will
generate separate return value. The dividend is paid when a stakeholder invests in a company
directly or provides financial assistance. As per the views of Walford (2008), book to market
ratio is calculated when investment is made through the stock exchanges in which the shares are
listed. When the capacity of finding out or prediction of returns is made by using book to market
ratio, the results are quite effective and nearly correct. As argued by Kang et al. (2010), it has
been also observed that negative return predictions too have come using this particular tool.
When book to market value is considered, the results are achieved by finding out the expenses
that are to be made by the company in the future years. Actually, the rate of profit from those
investments (cash flows) is calculated by making predictions. The index will be termed as
profitable or positive return is indicated, when those future cash flows are going to generate
profit for the company. According to Harrison et al. (2011), level of positive cash flow can be
transformed into negative data finding if the future cash flows are not made and the companies
start paying discounts and make delay in making the utilization of the cash flow.
2.8 Reasons for choosing Book to Market ratio

In some cases, return rates are predictable. Dividend payout rate is sometimes known to the
investors. Avery et al. (2011) opined the reason for knowing the return rates is due to pre
declaration of dividend amount by the companies to its shareholders. But in USA, the use of
book to market ratio for determining future returns came into use since late 60s.
While measuring the return using book to market ratio the index returns are tallied with the
changing returns when measured with the fluctuation of time series analysis. Lam (2009) stated,
it is well known to the investors that return rate will increase if the price of the shares increases
over a period of time. With the help of book to market ratio, investors can predict one year based
returns. The indexes having same weighted value, are compared based on the dividend yield and
book to market ratio. So starting from the year 1926 till 2013 it can be seen that return rate from
these two return demonstrators are different in all aspects for same weighted indexes.
27
According to Gulen et al. (2011), if the return for these entire years is estimated, then it can be
observed that returns have fluctuated a lot in these years due to market volatility and presence of
risk factor. The reasons for choosing this variable Book to market ratio to determine market
returns of the stocks having variation in all its cross sections. The return rate is calculated by
finding out the expected amount of cash flows of the listed companies. The relationship between
future return and book to market ratio is usually positive in most of the times.
Harrison et al. (2011) argued, even the coefficient between book to market ratio results and
dividend yield is positive is majority of the cases starting from 1926 to 2013. The return using
book to market ratio is determined by dividing the possible expenditures of the indexes by
present value of the index.
2.9 Positive features of Book to market ratio

The term book value is demonstrated by the difference in the value of the assets and the total
remaining payouts. As argued by Alaska (2010), it is a common fact that securities with lesser
risk are mostly preferred by the investors. The reason behind this preference is because of less
chances of earning profits in short time. People interested to make investments for a longer
period prefer to invest in the less risky bonds. Lam (2009) opined when investors receive higher
rate of returns, they become interested in purchasing riskier bonds in order to earn profit.
The positive features of Book to market ratio are discussed in brief
Future estimation of return rates that proved to be positive in many cases.

Predicting the position of the economy as well as the index.
Helps the investors regarding making investments in particular industry or company
listed in S&P 500 index.

Help to know past records regarding rise and fall of particular indexes in the particular
index S&P 500 (Avery et al. 2011).
Fama et al.(2010) opined though several positive factors are present in calculation of Book to
market ratio, there are several other difficulties or limitations present that has always questioned
the acceptability and accuracy of this ratio to predict future returns from S&P 500 index.
28
2.10 Negative features of book to market ratio

Gulen et al. (2011) opined all predictability ratios are comprised of different negative aspects. All
ratios are calculated to find out positive and negative features of all market results. Ratio analysis
helps to take precautionary measures regarding any persisting risks in return portfolio.
In case of persisting economical issues and frequent downswings in share prices, the results
derived previously from calculation of market ratios can change up to a large extent. Liew (2009)
argued that these ratios are only precautionary objectives regarding taking protection from loss
making in the share market. The negative features of Book to market ratio are as follows:
Huge differences in returns noticed as per as the calculations done using Book to market
ratio.
Non acceptability of Book to market returns for a long time by investors.
No predictions were separately given by Book to market ratio before the huge market
crash in 2008 (Cameron, 2009).

Most of the industries listed in S&P 500 have failed to perform as per the predictions of
Book to market ratio (Penman et al. 2009).
2.11 Comparison between previous research and existing research work:

The previous researches on this particular topic, predictability of market returns using book to
market ratio have described all the positive features as well as the negative features of this
predictability calculation. Calculation is carried out by collecting all the prices of stocks. The
previous researches have failed to discuss the positive and the negative features of the book to
market ratio, and how much difference is there in case of returns from dividends and book to
market ratio. In the past researches, the researcher tried to elaborate the relationship between
book to market ratio and changes in returns. Alaska (2010) noticed that relationship has been
stated clearly and in this research, the relationship has been clearly stated. The related researches
were carried on based on the stock prices of companies listed in S&P 500 index. Returns were
calculated for future based on the stock prices of those years when researches were carried out.
In this research, the researcher opted to use rate of the stocks listed in S&P 500, starting from
1926 till 2013. The returns are predicted and showcased in terms of monthly, half yearly and
annual returns.
29
2.12 Summary:
The summarization part of the literature review states how the researcher has taken up all the
relevant data and information useful in this research and applied in the course of the research.
Researcher added all relevant and required information and records of returns availed from S&P
500 index. All factors affecting return rate along with the macroeconomic factors affecting
returns are discussed and aligned with the research topic. It clearly shows that, share prices do
not increase only because of increase in the level of profit but also on certain economic factors of
the country and different policies adopted by the government related to financial adjustments and
adopting and abolishing preexisting or most preferred policies regarding financial strength of the
country. The share prices are also subjected to fall or rise in respective of various decisions
regarding operational ways in future.
30
Chapter-3: Research Methodology
3.0 Introduction
According to Bryman and Bell (2011), research methodology is one of the most important
aspects of any research work. In the research related to the predictability of market returns using
book to the market ratio researcher used appropriate strategy or methodology to complete
research by analyzing several methods of research strategy. Brannen (2009) stated proper
assessment of research methodology helps to solve problems related to the research work. The
research paradigm or philosophy, data findings and investigations help to find out the result of
the research problems (Onwuegbuzie and Leech, 2009).
3.1 Method Outline

This particular research is based on secondary data. For this research, researcher has collected
relevant data from reliable secondary sources like newspaper, journals, magazines, work of the
past researchers. The most appropriate and authentic data is available on the website of the S&P
500 index. Secondary data is analyzed by using post positivism research philosophy, inductive
approach and exploratory research design. The shares listed in this above mentioned index is also
available in the website of stock exchanges. The usage of the most authenticated data or this
research has led the way towards usage of secondary data in this particular research.
3.2 Research Onion

For any research, research onion is the simplest strategy to understand research methodology
that helped to conduct the research. The research steps are evaluated in such a way that one step
could be understood by opening previous steps. Just like research onion has many layers,
similarly in research work one step is revealed by opening another layer. There are many layers
or methods related to research work. By opening the layers the researcher could understand
appropriate method for each research. There are several layers of research onion like research
philosophy, research approaches, research strategies, choices, time horizons and last one is data
collection core. The diagram below shows the research onion in details about the methodology
used in this research.
31
Figure 3: Research Onion

(Source: Saunders et al. 2009, pp.52)
3.3 Research Paradigm/Philosophy

The research philosophy is first layer or process to evaluate the research results or outcomes of
research. The research philosophy comes with view point of researcher and with knowledge of
the researcher. According to Brannen (2009), research philosophy also needs experience and
technical knowledge of the researcher by working with the method. There are various types of
research philosophies like positivism, realism; interpretivism (Vargas-Hernajndez, 2012).The
epistemology approach of philosophy interacts with the relevant data in the field of education,
while ontology deals with characters of reality and axiology deals with judgmental approaches of
education. Bryman (2006) discussed that first philosophy related with the scientific approaches,
second one related with the truth and third one is related with emotional attitude of the
researcher. The positive philosophy of this research has been further divided and progressed
towards post positivism factor.
32
R
E
A
L
I
S
M
I N
T E
R P
P O
R
E
S T
T I
P O
V
S II T
SI V M I
S
P
R
A
G
M
A
T I
S
M
R e s
e a r
c h
P h i l
o s o
p h y
Figure 4: Research Philosophy

(Source: Darner, 2008, pp.90)
3.3.1 Justification for selecting positivism

The positivism research paradigm is related with emotional aspects related to scientific methods
used for the research work. During study of positivism, a research topic is studied and researcher
function is bounded in logical and analytical view approach. The details of data collected by
researcher are proven and identifiable. The statistical study is done by researcher with the help of
collected data. In the above mentioned topic positivism is taken as research paradigm.
3.4 Research Approach

Harrison and Reilly (2011) mentioned that research subjects and objectives help to determine
appropriate research approach that could be used for the research work. There are two types of
distribution methods for research approach. They are Inductive method and Deductive method of
research approaches. The deductive approach is related with testing theory, and it is most used
research approach which conducted deduction of hypothesis, search hypothesis and modify
theories as required in research. Inductive approach is related to generalization that is followed
33
by theories developed for the research (Truscott et al. 2010) Deductive research approach is
preferred for this research work as it has more particular working process.
ID
c
a
o
f
r
r
e
p
a
e
c
i
r
v
p
c
s
h
u
r
h
e
Figure 5: Research Approach

(Source: Alaska, 2010, pp.34)
3.4.1 Justifying the use of Inductive approach

This entire research is carried on the basis of the secondary data, and then the researcher has to
carry out the entire research process with the data that has been used by some previous
researchers or also from the respective websites or the reports that has been published by the
authentic bodies and even from the company.
The main motive for using the inductive approach is due to the no usability of the exact data as
the matters published in all related journals, magazines, and websites are not up to date. And as
these data is all about price of S&P 500 indexes, there is a change in the price of the shares
change every day. Also due to the usage of the quantitative process of the research, inductive
approach is necessary.
34
3.5 Research Purpose

As described by the research onion there are three different types research design. They are
Explanatory, Exploratory and Descriptive design. Explanatory design is related to theories that
are believed in research. So it does able to reveal the reality of the topic of research. Descriptive
research design evaluates the research work and gives the description about the research topic.
The investigative research design helps to understand primary research and theoretical
information related to the objectives (Walford, 2008).
A N A LY T IC A L
E X P L O R A T O RY
R E S E A R C H D E S IG N
E X P L A N AT O R Y
Figure 6: Research Design

(Source: Darner, 2008, pp.78)
3.5.1. Justification for Analytical Design

In this research work research study, issues and objectives are explained. So, analytical design is
preferred for this research work. Various methods and objectives are collected from data analysis
and explained with the help of analytical design. The data which are collected with the help of
explanatory and exploratory are not find appropriate enough
to able to provide required
information about the research work.
35
3.6 Research strategy

As mentioned by Darner (2008) with the help of suitable research strategies a researcher can
optimize the available research policies. Experiments, case studies, interviews, and surveys are
the research strategies which provide the secondary information to the researcher about the
event.
3.7 Methods of Data collection

In introduction method of research data collection method is utilized to achieve the desired
result. The data collected are used to analyze the components of the topic of research and support
the research work. The data gathering methods with detail analysis is given below.
3.7.1 Secondary data collection

According to Magilvy and Thomas (2009), secondary data collection methods include group of
suitable data which is emerged with the help of journals, book, articles and literatures related
with the research topic. Literature resources related to research is collected from various origins
and organizations to get desired secondary data and make appropriate analysis to create results
and conclusions.
3.7.2.2 Qualitative Data collection

Qualitative data is related with the studies and analysis of attitude, thinking, knowledge and
experience (Darner, 2008). In qualitative data collection method data are analyzed and recorded
for the further use like findings and clear out conclusions. As the researcher has opted to carry
out the secondary research, the data has been used from the reliable sources like the web
published materials, journals, magazine articles. The researcher has to option to use the research
findings of the other researchers. The data that has been used is not the present data, but the data
has been reliable at some point of time.
3.8 Secondary Data Analysis

As per the views of Bryman and Bell (2011), the secondary data that has been collected for the
purpose of the research has been validated and rectification of the thematic data has been done.
The data from the reliable sources that has been gathered for the purpose of the research has been
36
presented through the tabular form and the necessary mathematical calculations have been done
by using the data from the S&P 500 index. The data collected has also been tabulated and
represented in the form of the graphs for the purpose of proving the authentication of the data
used in the research.
3.9 Ethical considerations

According to Bergh and Ketchen (2009), secondary data is the usage of the past data. The data is
not recently collected for the purpose of the research but the entire data has been collected from
the reliable and valid sources. The data that has been used has not been tampered or has been
presented in arbitrary mode.
Entire data of this research is real and the data has been presented in the best possible way
according to the change of the market condition of the shares till the data of the using the valid
data. The authentic form of the data has been represented in both graphical and tabular form. The
calculations that have been shown are also based on the true data and the calculations are also
done in proper method.
3.10 Time schedule considered to perform research (Gantt chart)

The researcher follows the appropriate time schedule to conduct the research work in limited
time period by following the Gantt chart of research methodology. The below provided schedule
was followed by the researcher to conduct the research in appropriate manner.
Key activities
1st-2nd
3rd week 10th
week
to
week 16th
9th to 15th
week
Selection
of
the
topic
Composition of the
literature review
Research
methodology
Collection
to
week
week 21st week 24th week

20th to
23rd
week
of
secondary data
37
Analysis
interpretation
and
of
secondary data
Findings
Conclusion
and
Recommendation
Final submission
Table 1: Gantt chart

(Source: As created by Author)
3.11 Summary
In this chapter of research methodology, the researcher tries to make effort to create the most
appropriate and effective methodology to complete research work. The reliable research
methodology is adopted by studying the research onion. The methodology involves the
positivism philosophy, deductive approach, and analytical design to conduct the current research.
As the entire research is dependent on the case of the secondary data, the most reliable and the
valid data has been used by the researcher. The data represents the changes of the market
condition as the price of the shares are due to change on everyday basis and the change is
different for the different types of the industries that have been listed in the index.
38
Chapter 4: Data analysis and Findings
4.1 Introduction
This particular research is based on the secondary data only. The process of collecting the
secondary data is rather easy as compared to the collection of the primary data. Researcher needs
to collect the required data from the works of the past researchers. Other reliable sources of the
data collection are the books, journals, magazines, and the most reliable of all is the website that
can be accessed from the internet and from the own site of the company and also from the site of
the index publishers. The published articles of the different credit rating agencies are also the
reliable sources of gathering the secondary data. In general the reliability and the acceptability of
the secondary data changes from one case to other but the results received due to the presentation
of the secondary data is going to be changed and different than the result that will be obtained
from the primary data.
4.2 Critical evaluation of the issues related to the market returns of the S&P 500 indexes
under S & P 500 indexes
Share Market condition
The condition of the share market for the last 10 years is not that much influencing or
progressive. The price of the shares have shown rise in some parts but have also shown sharp
falls during the major part of the time span. The market has been very much vulnerable and the
predictions regarding the growth have proven wrong for moist of the time.
The present period has experienced the growth of the share prices but has lasted for a short
period. As per the views of Alaska (2010), the vulnerable condition of the entire market is due to
some avoidable and unavoidable conditions that are present in the economical cycle of the entire
economy and in all the countries of the same continent. The factors are the recession in the world
economy, rise in the prices of the relevant products and the decline of the value of the currencies
of the most developed countries and the decrease in the purchasing power of the S&P 500 index.
(For graph refer to appendix 1)
The last 10 years condition of the share market belonging to the S&P 500 index are also the same
39
as compared to the other indexes like Bloomberg terminal and others. In this particular period,
the performances of the industries have changed a lot. Some of the industries have made high
range of profit while some of the industries are in the successive years of loss making. If a close
look is made in the performance of the hedge funds, the decimation is clearly seen. Cenesizoglu
(2011) opined that the performance of the hedge funds have tended to underperform in the entire
market scenario as the involved risks have increased a lot in the last decade. In addition, until the
present date the expected rate of the return has not reached the expected level or the calculated
result that has been made by the market experts. Due to the factor of taking short-term strategies
by the S&P 500 index regarding the investment structure of the company the rate of the
investment return has been decreasing a lot in the present time. Since the year 1995, the annual
returns from the second quarter of the year has remained nearly around 8-8.6%, and has
experienced the growth till 9% at the maximum level. At the later part of the decade, the S&P
500 index started to perform better than the hedge funds and the rate of the annual returns have
increased to the limit of double of the hedge funds. The result has been derived as the correlation
co efficient between the two indices has depicted the result of 0.6 and the beta factor has not
risen up than the level of 033 since the last decade (Kang et al. 2010)
(For Graph refer to appendix 2)
After the massive crash in the share market of the entire world, the market has remained unable
to recover from the position of making losses. The result can be proved, as the growth rate of the
shares has remained the same since the last 10 years regarding the annual return from the
investments. The presence of huge amount of credit in the market has declined the position of the
stock market, as the time needed for recovering the money has been difficult due to the lack of
the liquid money in the hands of the people. According to Darner (2008), People has also
adopted the tendency to invest in the less risky shares as the risky shares have the tendency to
bring more profit but is vulnerable to massive fall in the present market conditions.
Among the entire listed S&P 500 index in the S&P 500 index, the most profitable industries are
the telecommunication, industries, health, and social care, consumer goods, information
technology. While the loss making S&P 500 index listed in the sectors are the industries like the
beauty products, and the products like garments and many more small level industries.
Profit making Industries
40
The profit making industries belonging to the S&P 500 for the last 10 years are the goods
industry, energy S&P 500 index, consumer goods industries, the industry relating to the means of
media communication, financial institutions and the insurance sector, software industry, the
health care and telecommunications.
Cameron (2009) opined that in relation to these industries, the most profitable industries have
enjoyed the growth. If the performance of these industries is taken for the period of the last 80
year or so, then it can be said that the S&P 500 index belonging to these industries have enjoyed
a medium level to high level of growth in the index price of the shares. For finding out the
profitability of the industries, the recent data on the profitability of the industries for the last 6
months to 1 year has been analyzed. In addition, the results show that the industries have enjoyed
quite high range of profitability and have all the positive predictions regarding the growth in the
next one-year or so.
Industries
Last 1 year growth
Last
6.8
growth
7.6
growth
7.7
8.1
8.2
8.5
consumer goods)
Health
care 4.6
4.7
4.7
(services)
I.T. (hardware and 19.9
19.4
20.0
software)
Telecommunication
Food industry
Energy (Oil and gas)
Media houses
10.4
2.8
12.5
9.8
10.4
2.8
12.7
10.2
Financial
months Present
rate
of
company(Banks,
insurance
and
others)
Materials
(Commercial
and
10.4
2.8
11.7
9.7
Table 2: Table showing the growth of the profitable industries of S&P 500 Index
(Source: Business Insider, 2015
Statistics
41
last 1 year
growth rate
N
Valid
Missing
8
0
9.2500
1.84923
8.9000
2.80a
5.23041
27.357
1.117
Last 6
months
growth
8
0
9.4250
1.79829
9.0000
2.80a
5.08633
25.871
.895
Mean
Std. Error of Mean
Median
Mode
Std. Deviation
Variance
Skewness
Std. Error of
.752
.752
Skewness
Kurtosis
2.035
1.467
Std. Error of Kurtosis
1.481
1.481
Range
17.10
16.60
Minimum
2.80
2.80
Maximum
19.90
19.40
25
5.1500
5.4250
Percentiles 50
8.9000
9.0000
75
11.3750
11.9750
a. Multiple modes exist. The smallest value is shown
Statistics
last 1 year
growth rate
N
Valid
Missing
Mean
Std. Error of Mean
Median
Mode
Std. Deviation
Variance
Skewness
Std. Error of
Skewness
Last 6
months
growth
Present rate
of growth
8
0
9.6250
1.86047
9.3500
2.80a
5.26220
27.691
.916
.752
1.561
1.481
17.20
2.80
20.00
5.4500
9.3500
12.1250
Present rate
of growth
8
0
9.2500
1.84923
8.9000
2.80a
5.23041
27.357
1.117
8
0
9.4250
1.79829
9.0000
2.80a
5.08633
25.871
.895
8
0
9.6250
1.86047
9.3500
2.80a
5.26220
27.691
.916
.752
.752
.752
42
Kurtosis
2.035
1.467
1.481
1.481
Range
17.10
16.60
Minimum
2.80
2.80
Maximum
19.90
19.40
25
5.1500
5.4250
Percentiles 50
8.9000
9.0000
75
11.3750
11.9750
2.80
4.60
6.80
8.10
Valid 9.70
10.40
11.70
19.90
Total
1.561
1.481
17.20
2.80
20.00
5.4500
9.3500
12.1250
last 1 year growth rate

Frequenc Percent
Valid
Cumulative
y
Percent
Percent
1
12.5
12.5
12.5
1
12.5
12.5
25.0
1
12.5
12.5
37.5
1
12.5
12.5
50.0
1
12.5
12.5
62.5
1
12.5
12.5
75.0
1
12.5
12.5
87.5
1
12.5
12.5
100.0
8
100.0
100.0
Table 3: Table showing the statistical data of the profitable industries listed in S&P 500
43
44
Growth of the industries

20
19.9
19.4
8.5
8.2
7.7 8.1
7.6
6.8
10.4
10.4
10.4
4.7
4.7
4.6
12.7
12.5
11.7
10.2
9.8
9.7
2.8
2.8
2.8
Figure 7: Graph showing the growth rate of the profitable industries for the last 1 year to
present
(Source: Created by author)
Analysis
After conducting the entire study of the profitable industries of the above-mentioned S&P 500
45
index, it can be easily depicted that the period of the last 1 year until the present times have
enjoyed the maximum level of the growth. However, the margin is not very high but it is still in a
strong position related to the other industries of the index (Jiang, 2009).
Among the profitable industries, the most profitable part of the industry belongs to the I.T.
section that has enjoyed the growth. In addition, at present is settled at the level of 20.0%. The
next performance of growth has been depicted for the Energy industry where the oil and gas S&P
500 index have been able to enjoy a successful growth rate of more than 12 and counts for 12.7
at the present. As expected, the next best performer is the sector of telecommunication presently
standing at the rate of 10.4 since the last 1-year or so. However, in the context of the growth rate
of the other industries, the sector of health care and the food industry are still unable to enjoy the
growth rate of 5. Counting the growth of the food industry of 2.8% and 4.7% of health care and it
can be said that these two industries can be categorized as the less performing or the industries
that are vulnerable to make losses in the upcoming years.
Industries facing major loss
Likewise, some of the industries listed in the S&P 500 index are still underperforming and in the
present the S&P 500 index of the specific industries are on the verge of incurring losses. The
respective loss making sectors of the S&P 500 indexed S&P 500 index. From the website it can
be seen that the sectors of food, health care and the sector of the mutual funds are the most
important and the seriously loss making industries. The sectors of beauty products and garments
are also easily included in the list of the loss making industries in USA.
If a close observation is made in the above-mentioned loss making industries, it can be said that
the S&P 500 index having a pure and proper brand value. Moreover, a huge base of the
customers is on the higher side of the business where as the minor or the entry level industries of
these sectors are the major sufferers. Due to the purpose of making an entry in the market and
creating a reputation in the market and enter in the competition, these S&P 500 index or the
brands try to make different types of strategies in order to attract the views of the customers.
In case of investing in the hedge bonds in the mutual fund sector, the investors have received the
return of about 0.4% in the previous financial year.
Industries
Last 1 year growth
Last
growth
months Present
rate
of
growth
46
Food industry
Clothing
Beauty products
Mutual funds
USA retail market
2.8
2.4
1.89
0.5
1.3
2.8
2.4
2.0
0.4
2.85
2.8
2.2
2.2
0.4
2.5
Table 4: Table showing the decline of the loss making industries of S&P 500 Index
(Source: Business Insider, 2015)
Statistics
Last 1 year
growth
N
Valid
Missing
Mean
Std. Error of Mean
Median
Mode
Std. Deviation
Variance
Skewness
Std. Error of
Skewness
Kurtosis
Range
Minimum
Maximum
Sum
Percentiles 10
20
25
30
40
50
60
70
Last 6
months
growth
Present rate
of growth
5
0
1.7780
.40655
1.8900a
.50b
.90908
.826
-.492
5
0
2.0900
.44956
2.4000a
.40b
1.00524
1.011
-1.641
5
0
2.0200
.42000
2.3000a
2.20
.93915
.882
-1.838
.913
.913
.913
-.751
2.000
2.30
.50
2.80
8.89
.5000c
.9000
1.1000
1.3000
1.5950
1.8900
2.1450
2.4000
2.717
2.000
2.45
.40
2.85
10.45
.4000c
1.2000
1.6000
2.0000
2.2000
2.4000
2.6000
2.8000
3.751
2.000
2.40
.40
2.80
10.10
.4000c
1.0000
1.3000
1.6000
2.2000
2.3000
2.4000
2.5000
47
75
2.5000
2.8125
80
2.6000
2.8250
90
2.8000
2.8500
a. Calculated from grouped data.
b. Multiple modes exist. The smallest value is shown
c. Percentiles are calculated from grouped data.
2.5750
2.6500
2.8000
.50
1.30
1.89
Valid
2.40
2.80
Total
Last 1 year growth

Frequenc Percent
Valid
Cumulative
y
Percent
Percent
1
20.0
20.0
20.0
1
20.0
20.0
40.0
1
20.0
20.0
60.0
1
20.0
20.0
80.0
1
20.0
20.0
100.0
5
100.0
100.0
.40
2.00
2.40
Valid
2.80
2.85
Total
Last 6 months growth

Frequenc Percent
Valid
Cumulative
y
Percent
Percent
1
20.0
20.0
20.0
1
20.0
20.0
40.0
1
20.0
20.0
60.0
1
20.0
20.0
80.0
1
20.0
20.0
100.0
5
100.0
100.0
Valid .40
2.20
Present rate of growth

Frequenc Percent
Valid
Cumulative
y
Percent
Percent
1
20.0
20.0
20.0
2
40.0
40.0
60.0
48
2.50
2.80
Total
1
1
5
20.0
20.0
100.0
20.0
20.0
100.0
80.0
100.0
Table 5: Table showing the statistical data of the loss making industries listed in S&P 500
49
50
Loss making industries
Fooding industry
Clothing
Beauty products
Mutual funds
UK retail market
Figure 8: Graph showing the growth rate of the profitable industries for the last 1 year to
present
Despite of reviewing the reports published about the low performance of the loss making
industries belonging in the S&P 500 index, still other industries are less in performance due to
the certain existing factors in the industry. The factors are described as follows:
Presence of the Reputed S&P 500 index having positive brand image
Existence of the minor S&P 500 index
All the S&P 500 index are not included in the stock indices
Downswing of the entire economy
Recession all over the world, especially in the developed industries
According to Penman et al. (2009) though these factors are present there are still some S&P 500
index belonging to the particular loss making industry that has been able to make huge profits in
these particular years. The S&P 500 index like Delta Airlines, Pepco Holding co, etc all have
been able to make huge profits in the context of the loss-making period of the entire period.
When these S&P 500 index are making huge profits, the other S&P 500 index belonging to the
particular industry are found suffering in the position of break even, loss or have to stick to the
strategy of making charity pricing. In many cases, some of the companies listed in the S&P 500
index had to withdraw from the business sector in order to save the capital of the company and
51
then wait for the favorable conditions to arrive so that the business can be made profitable.
Actually, the scenario has been adverse for the people even in making the investment in the
mutual funds. The declining pattern of the business of the mutual fund industry is due to the
preference of the less risky shares as the investors are not keen to make any loss of the liquid
money in the share market. The investors are generally interested to save the capital money and
even lately the number of investor have declined up to a certain limit and that is one of the main
reasons behind the overall decline of the mutual fund sector (Lam, 2009).
The case scenario is quite same in respect of the companies belonging to the food and the
clothing industry. Generally, it has been seen that the listed companies, the reputation of the
brands are catchier to the users and the majority of the users stick to the particular type of the
brand or the product. The quality of the food and the dress material is the main concern for the
users, as the people are less interested to make les expenses regarding the purchase of the
garments, and not interested to eat outside too often, so the sales figures of these less known
brands are mostly hampered.
Though the price of the branded products is higher than the less known products, still people
have developed the habit of preferring the quality of the product to the price of the product. Jiang
and Lee (2007) opined there is also a concern regarding the sector of health and social care.
Though this particular sector is not a profit making industry but still it has been seen that the
concern of people regarding the health of the people is still very less and that is the reason for
suffering of this particular sector. Though the different health care agencies are trying to improve
the condition of this particular sector, still the rate has been in the declining version.
Industries
Present
rate
of Present
Financial
growth
7.7
decline
N/A
8.5
N/A
rate
of
company(Banks,
insurance
and
others)
Materials
(Commercial
and
consumer goods)
52
Health
care 4.7
N/A
(services)
I.T. (hardware and 20.0
N/A
software)
Telecommunication
Food industry
Energy (Oil and gas)
Media houses
Food
industry
10.4
2.8
12.7
10.2
N/A
N/A
N/A
N/A
N/A
2.8
(Restaurants)
Clothing
Beauty products
Mutual funds
USA retail market
N/A
N/A
N/A
N/A
2.2
2.2
0.4
2.5
Table 6: Table showing the decline of the loss making industries of S&P 500 Index
(Source: Business Insider, 2015)
Statistics
Present rate Present rate
of growth
of decline
Valid
13
13
N
Missing
0
0
Mean
5.9231
.78
Std. Error of Mean
1.75207
.321
Median
4.7000
.00
Mode
.00
0
Std. Deviation
6.31719
1.158
Variance
39.907
1.340
Skewness
.867
.975
Std. Error of
.616
.616
Skewness
Kurtosis
.265
-1.110
1.191
1.191
Range
20.00
3
Minimum
.00
0
Maximum
20.00
3
53
Sum
10
20
25
30
40
Percentiles 50
60
70
75
80
90
77.00
.0000
.0000
.0000
.0000
1.6800
4.7000
8.0200
9.8600
10.3000
10.8600
17.0800
10
.00
.00
.00
.00
.00
.00
.16
1.84
2.20
2.26
2.68
.00
2.80
4.70
7.70
8.50
Valid
10.20
10.40
12.70
20.00
Total

Frequenc Percent
Valid
Cumulative
y
Percent
Percent
5
38.5
38.5
38.5
1
7.7
7.7
46.2
1
7.7
7.7
53.8
1
7.7
7.7
61.5
1
7.7
7.7
69.2
1
7.7
7.7
76.9
1
7.7
7.7
84.6
1
7.7
7.7
92.3
1
7.7
7.7
100.0
13
100.0
100.0
Valid 0
0
2
3
Present rate of decline

Frequenc Percent
Valid
Cumulative
y
Percent
Percent
8
61.5
61.5
61.5
1
7.7
7.7
69.2
2
15.4
15.4
84.6
1
7.7
7.7
92.3
54
3
Total
1
13
7.7
100.0
7.7
100.0
100.0
Table 7: Table showing the statistical data of the loss making industries listed in S&P 500
55
Trend line showing growth and decline

20
0
2
0
3
2
8.5 5
7.7 0
0
4.7
0
12.7
0
10.4
0
2.8
0
10.2
0
2.8 2.2 2.2
2.5
0.4
0
0
0
0
0
56
Figure 9: Graph showing the trend of growth and decline of the related industries
The trend lines show the volatility of the industry as per the growth and the fall of the S&P 500
index belonging to the same industry. But, still the fact is that the non performing S&P 500 index
are unable to make the business as per the demand of the industry, but still the leaders of the
respective industry are the major performers still in the present situation and would continue to
do so in the future years (Basu, 2008).
S&P 500 index Situation in context to financial status of the USA market
According to the financial status of the market, the S&P 500 index are not able to perform as per
the required goal of the company. The main motive of the listed companies is to keep the
business alive and then attract the new customers. Here, companies having a positive brand
image among the following customers are able to retain the old customers as well as bring new
customers.
Now the companies are not making any decision regarding the expansion of the business
especially in the European countries. Nevertheless, there are still some places in USA, where
demands of products manufactured and sold by this loss making industry have quite higher
demand. As per the views of Lam (2009), even the high profile companies in the sector of the
garments and the food chains are still unable to make the business expenses or take any decision
regarding the expansion. The major sufferers are the small and the less reputed business units.
The industry related to the making investments in the mutual fund market is in the worst
condition ever. The returns are so much unpredictable and due to successive loss making of the
particular sector, the rate of making investments has gone down by far limits.
Now, if a close look is made in the profitable sectors of the market, the sectors that has been able
to make profits successively for the last one year has kept the rate of the growth constant and
even higher than the market predictions. Actually, the reason behind the growth of these
particular sectors has a proper economical reason. The demand of the products of these sectors
have grown excessively and that has lead to the reduction of the price of the products, the actual
reason behind the consumption of these products and helping the industry directly in the
favourable manner towards growth. According to Piotroski (2007), in perspective to the rise and
fall in the market conditions that has been observed since the last decade is also due to the
political turmoil in the some of the countries. The excessive rise in the price of gold and the
57
political effect in the major petroleum producing countries have led towards the situation of the
declining market condition. Therefore, it can be concluded that some of the industries have been
able to make high profit whereas the others are in the course of making losses or even towards
the position of shut down
Analysis of the return of S&P 500 index for the period of 1926 to 2013
For this research, analysing the returns from the shares of the companies listed in the S&P 500
index has been made. The data used for this particular analysis is taken from S&P 500 index
website. The return rate for the year is calculated in the basis of annual, monthly and quarterly
basis.
It is easily seen that prices of this index have experienced major fall. In most of the years,
especially when market recession was persisting in this economy, the market rate fell at a
massive rate. To make detail analysis of the return rates, the data is divided into 2 parts. The
analysis is done in details for annual, monthly and quarterly basis. For making a better study, the
index data is divided into 3 parts. This segregation helped the researcher to make a detail analysis
of the history of S&P 500 index starting from 1926 until 2013.
Date (Year)
Index
Book to market
Dividend Yield
58
1926
1927
1928
1929
1930
1931
1932
1933
1934
1935
1936
1937
1938
1939
1940
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
13.49
17.66
24.35
21.45
15.34
8.12
6.89
10.10
9.50
13.43
17.18
10.55
13.21
12.49
10.58
8.69
9.77
11.67
13.28
17.36
15.30
15.30
15.20
16.76
20.41
23.77
26.57
24.81
35.98
45.48
46.67
39.99
55.21
59.89
58.11
71.55
63.10
75.02
84.75
92.43
0.4414758270
0.3746885899
0.2596666667
0.3384578236
0.5547454126
1.1707317073
1.4420843014
0.8290260464
0.7737408689
0.5599111913
0.4585881045
0.7074886223
0.5720393884
0.5807053804
0.7290475101
0.8895097332
0.8626465662
0.7874015748
0.7437635753
0.6132393344
0.6924379233
0.7253256790
0.8409475465
0.7964292839
0.7225384419
0.7213163466
0.6940733128
0.7597009612
0.6041197854
0.5098280098
0.5441768274
0.6536757786
0.5117793198
0.4577837965
0.5504229651
0.5059222584
0.5916270511
0.5255914542
0.4872273003
0.4306378062
0.051148999
0.043601359
0.034907598
0.045221445
0.063885267
0.100985222
0.07256894
0.043564356
0.047368421
0.034996277
0.041909197
0.075829384
0.038607116
0.049639712
0.063327032
0.081703107
0.060388946
0.05227078
0.048192771
0.038018433
0.046405229
0.054901961
0.061184211
0.068019093
0.072023518
0.059318469
0.053067369
0.058444176
0.042801556
0.036059807
0.037283051
0.04476119
0.031697156
0.030556019
0.033557047
0.028232006
0.033755943
0.030391895
0.029498525
0.029427675
59
Table 8: Table showing index, book to market and dividend yield of S&P 500 indexes (19261966)
(Source: S&P 500)
Statistics
Present rate Present rate
of growth
of decline
Valid
13
13
N
Missing
0
0
Mean
5.9231
.78
Std. Error of Mean
1.75207
.321
Median
4.7000
.00
Mode
.00
0
Std. Deviation
6.31719
1.158
Variance
39.907
1.340
Skewness
.867
.975
Std. Error of
.616
.616
Skewness
Kurtosis
.265
-1.110
1.191
1.191
Range
20.00
3
Minimum
.00
0
Maximum
20.00
3
Sum
77.00
10
10
.0000
.00
20
.0000
.00
25
.0000
.00
30
.0000
.00
40
1.6800
.00
Percentiles 50
4.7000
.00
60
8.0200
.16
70
9.8600
1.84
75
10.3000
2.20
80
10.8600
2.26
90
17.0800
2.68
60
.00
2.80
4.70
7.70
8.50
Valid
10.20
10.40
12.70
20.00
Total

Frequenc Percent
Valid
Cumulative
y
Percent
Percent
5
38.5
38.5
38.5
1
7.7
7.7
46.2
1
7.7
7.7
53.8
1
7.7
7.7
61.5
1
7.7
7.7
69.2
1
7.7
7.7
76.9
1
7.7
7.7
84.6
1
7.7
7.7
92.3
1
7.7
7.7
100.0
13
100.0
100.0
0
0
2
Valid
3
3
Total
Present rate of decline

Frequenc Percent
Valid
Cumulative
y
Percent
Percent
8
61.5
61.5
61.5
1
7.7
7.7
69.2
2
15.4
15.4
84.6
1
7.7
7.7
92.3
1
7.7
7.7
100.0
13
100.0
100.0
Table 9: Table showing index, book to market and dividend yield of S&P 500 indexes (19261966)
(Source: S&P 500)
61
62
Valid
Missing
Statistics
S&P500
Index
42
0
31.6240476
4.07166426
17.5100000
15.30000
26.38740027
696.295
1.168
Book to
market
42
0
.6456490
.03271802
.5978734
.25967a
.21203701
.045
1.461
Mean
Std. Error of Mean
Median
Mode
Std. Deviation
Variance
Skewness
Std. Error of
.365
.365
Skewness
Kurtosis
.076
4.222
.717
.717
Range
89.58000
1.18242
Minimum
6.89000
.25967
Maximum
96.47000
1.44208
Sum
1328.21000
27.11726
10
9.5810000
.4338892
20
11.2340000
.4984443
25
13.0300000
.5112915
30
13.4150000
.5257723
40
15.3080000
.5623368
Percentiles 50
17.5100000
.5978734
60
24.2340000
.6937462
70
40.5390000
.7256979
75
48.8050000
.7477479
80
58.8220000
.7792052
90
78.7370000
.8561369
Valid 6.89000
Dividend
Yield
42
0
.0484647
.00254928
.0449913
.02823a
.01652119
.000
1.056
.365
1.103
.717
.07275
.02823
.10099
2.03552
.0303055
.0336764
.0349741
.0360266
.0420877
.0449913
.0493503
.0552562
.0595861
.0620413
.0724053
S&P500 Index
Frequenc Percent
Valid
Cumulative
y
Percent
Percent
1
2.4
2.4
2.4
63
8.12000
8.69000
9.50000
9.77000
10.10000
10.55000
10.58000
11.67000
12.49000
13.21000
13.28000
13.43000
13.49000
15.20000
15.30000
15.34000
16.76000
17.18000
17.36000
17.66000
20.41000
21.45000
23.77000
24.35000
24.81000
26.57000
35.98000
39.99000
45.48000
46.67000
55.21000
58.11000
59.89000
63.10000
71.55000
1
1
1
1
1
1
1
1
1
1
1
1
1
1
2
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
4.8
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
4.8
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
4.8
7.1
9.5
11.9
14.3
16.7
19.0
21.4
23.8
26.2
28.6
31.0
33.3
35.7
40.5
42.9
45.2
47.6
50.0
52.4
54.8
57.1
59.5
61.9
64.3
66.7
69.0
71.4
73.8
76.2
78.6
81.0
83.3
85.7
88.1
64
75.02000
80.33000
84.75000
92.43000
96.47000
Total
Valid .25967
.33846
.37469
.43064
.44148
.45778
.45859
.48723
.50592
.50983
.51178
.52559
.52579
.54418
.55042
.55475
.55991
.57204
.57695
.58071
.59163
.60412
.61324
.65368
.69244
1
1
1
1
1
42
2.4
2.4
2.4
2.4
2.4
100.0
2.4
2.4
2.4
2.4
2.4
100.0
90.5
92.9
95.2
97.6
100.0
Book to market
Frequenc Percent
Valid
Cumulative
y
Percent
Percent
1
2.4
2.4
2.4
1
2.4
2.4
4.8
1
2.4
2.4
7.1
1
2.4
2.4
9.5
1
2.4
2.4
11.9
1
2.4
2.4
14.3
1
2.4
2.4
16.7
1
2.4
2.4
19.0
1
2.4
2.4
21.4
1
2.4
2.4
23.8
1
2.4
2.4
26.2
1
2.4
2.4
28.6
1
2.4
2.4
31.0
1
2.4
2.4
33.3
1
2.4
2.4
35.7
1
2.4
2.4
38.1
1
2.4
2.4
40.5
1
2.4
2.4
42.9
1
2.4
2.4
45.2
1
2.4
2.4
47.6
1
2.4
2.4
50.0
1
2.4
2.4
52.4
1
2.4
2.4
54.8
1
2.4
2.4
57.1
1
2.4
2.4
59.5
65
.69407
.70749
.72132
.72254
.72533
.72905
.74376
.75970
.77374
.78740
.79643
.82903
.84095
.86265
.88951
1.17073
1.44208
Total
Valid .02823
.02943
.02950
.03027
.03039
.03056
.03170
.03356
.03376
.03491
.03500
.03573
.03606
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
42
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
100.0
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
100.0
61.9
64.3
66.7
69.0
71.4
73.8
76.2
78.6
81.0
83.3
85.7
88.1
90.5
92.9
95.2
97.6
100.0
Dividend Yield
Frequenc Percent
Valid
Cumulative
y
Percent
Percent
1
2.4
2.4
2.4
1
2.4
2.4
4.8
1
2.4
2.4
7.1
1
2.4
2.4
9.5
1
2.4
2.4
11.9
1
2.4
2.4
14.3
1
2.4
2.4
16.7
1
2.4
2.4
19.0
1
2.4
2.4
21.4
1
2.4
2.4
23.8
1
2.4
2.4
26.2
1
2.4
2.4
28.6
1
2.4
2.4
31.0
66
.03728
.03802
.03861
.04191
.04280
.04356
.04360
.04476
.04522
.04641
.04737
.04819
.04964
.05115
.05227
.05307
.05490
.05844
.05932
.06039
.06118
.06333
.06389
.06802
.07202
.07257
.07583
.08170
.10099
Total
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
42
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
100.0
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
2.4
100.0
33.3
35.7
38.1
40.5
42.9
45.2
47.6
50.0
52.4
54.8
57.1
59.5
61.9
64.3
66.7
69.0
71.4
73.8
76.2
78.6
81.0
83.3
85.7
88.1
90.5
92.9
95.2
97.6
100.0
Table 10: Table showing index, book to market and dividend yield of S&P 500 indexes
(1926-1966)
(Source: S&P 500)
67
68
120
100
80
60
40
20
0
Figure 10: Graph showing the index of S&P 500 index from 1926 to 1966
It is observed that the time from 1926 to 1967 enjoyed the index as much as 96.47 and the lowest
index was 6.89. The majority of book to market returns were below 1.0, while the lowest being
69
0.25. It states that this period enjoyed the maximum growth. The returns on the index S&P 500
was higher during the years 1952 to 1966
Date (Year)
Index
Book to market
Dividend yield
70
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
103.86
92.06
92.15
102.09
118.05
97.55
68.56
90.19
107.46
95.10
96.11
107.94
135.76
122.55
140.64
164.93
167.24
211.28
242.17
247.08
277.72
353.40
330.22
417.09
435.71
466.45
459.27
615.93
740.74
970.43
1,229.23
1,469.25
1,320.28
1,148.08
879.82
1,111.92
1,211.92
1,248.29
1,418.30
1,468.36
0.5049006623
0.6510820131
0.6464263577
0.6439002471
0.5956745946
0.7555884634
1.1200181747
0.8763388510
0.7799731250
0.9603330245
1.0457012956
1.0619500680
0.8915030239
1.0611428571
0.9322147266
0.7003591178
0.7330983765
0.5926926882
0.4984308658
0.5088120155
0.4652835740
0.3904547436
0.4844968599
0.4203444173
0.3941096142
0.3052672229
0.2915683000
0.2550263829
0.2073427297
0.1788008842
0.1736113154
0.1471672594
0.1518515036
0.1312178459
0.2953858956
0.2187398648
0.2706192427
0.3134779566
0.2816823997
0.2505829731
0.029559022
0.03432544
0.034074878
0.030071506
0.026683609
0.034648898
0.052508751
0.04080275
0.037688442
0.049106204
0.052752055
0.052343895
0.04537419
0.054100367
0.048848123
0.042987934
0.045025114
0.03739114
0.034190858
0.035656468
0.035035287
0.031267685
0.036611956
0.029250282
0.028413394
0.026969664
0.028697716
0.022388908
0.02011502
0.015961996
0.013178982
0.011359537
0.012323144
0.013709846
0.018273056
0.015635118
0.016040663
0.017800351
0.017542833
0.018885757
71
(1967-2013)
(Source: S&P 500)
Valid
Missing
Mean
Std. Error of Mean
Median
Mode
Std. Deviation
Variance
Skewness
Std. Error of
Skewness
Kurtosis
Range
Minimum
Maximum
Sum
Percentiles 10
20
25
30
40
50
60
70
75
Statistics
S&P500
Index
46
0
608.3330435
79.08799172
385.2450000
68.56000a
536.4008575
3
287725.880
.610
Book to
market
46
0
.5051404
.04197430
.4072270
.13122a
Dividend
Yield
46
0
.0299793
.00182926
.0294047
.01136a
.28468353
.01240666
.081
.702
.000
.385
.350
.350
.350
-1.131
.688
1779.80000
68.56000
1848.36000
27983.32000
94.2150000
105.3000000
115.5225000
136.2480000
235.9920000
385.2450000
640.8920000
1097.771000
0
1164.040000
0
-.629
.688
.98880
.13122
1.12002
23.23646
.1772440
.2612635
.2890968
.3044940
.3537939
.4072270
.5056829
-.884
.688
.04274
.01136
.05410
1.37905
.0150575
.0179096
.0187326
.0200965
.0258247
.0294047
.0340981
.6461737
.0355943
.7085439
.0374655
72
1240.666000
.7702193
0
1420.667000
90
.9859435
0
80
Valid 68.56000
90.19000
92.06000
92.15000
95.10000
96.11000
97.55000
102.09000
103.86000
107.46000
107.94000
118.05000
122.55000
135.76000
140.64000
164.93000
167.24000
211.28000
242.17000
247.08000
277.72000
330.22000
353.40000
417.09000
435.71000
459.27000
.0421139
.0500775
S&P500 Index
Frequenc Percent
Valid
Cumulative
y
Percent
Percent
1
2.2
2.2
2.2
1
2.2
2.2
4.3
1
2.2
2.2
6.5
1
2.2
2.2
8.7
1
2.2
2.2
10.9
1
2.2
2.2
13.0
1
2.2
2.2
15.2
1
2.2
2.2
17.4
1
2.2
2.2
19.6
1
2.2
2.2
21.7
1
2.2
2.2
23.9
1
2.2
2.2
26.1
1
2.2
2.2
28.3
1
2.2
2.2
30.4
1
2.2
2.2
32.6
1
2.2
2.2
34.8
1
2.2
2.2
37.0
1
2.2
2.2
39.1
1
2.2
2.2
41.3
1
2.2
2.2
43.5
1
2.2
2.2
45.7
1
2.2
2.2
47.8
1
2.2
2.2
50.0
1
2.2
2.2
52.2
1
2.2
2.2
54.3
1
2.2
2.2
56.5
73
466.45000
615.93000
740.74000
879.82000
903.25000
970.43000
1111.92000
1115.10000
1148.08000
1211.92000
1229.23000
1248.29000
1257.60000
1257.64000
1320.28000
1418.30000
1426.19000
1468.36000
1469.25000
1848.36000
Total
Valid .13122
.14717
.15185
.17361
.17880
.20734
.21874
.25058
.25503
.27062
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
46
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
100.0
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
100.0
58.7
60.9
63.0
65.2
67.4
69.6
71.7
73.9
76.1
78.3
80.4
82.6
84.8
87.0
89.1
91.3
93.5
95.7
97.8
100.0
Book to market
Frequenc Percent
Valid
Cumulative
y
Percent
Percent
1
2.2
2.2
2.2
1
2.2
2.2
4.3
1
2.2
2.2
6.5
1
2.2
2.2
8.7
1
2.2
2.2
10.9
1
2.2
2.2
13.0
1
2.2
2.2
15.2
1
2.2
2.2
17.4
1
2.2
2.2
19.6
1
2.2
2.2
21.7
74
.28168
.29157
.29539
.30441
.30527
.31348
.32553
.34903
.35498
.35723
.35810
.39045
.39411
.42034
.46528
.48450
.49843
.50490
.50881
.59269
.59567
.64390
.64643
.65108
.70036
.73310
.75559
.77997
.87634
.89150
.93221
.96033
1.04570
1.06114
1.06195
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
23.9
26.1
28.3
30.4
32.6
34.8
37.0
39.1
41.3
43.5
45.7
47.8
50.0
52.2
54.3
56.5
58.7
60.9
63.0
65.2
67.4
69.6
71.7
73.9
76.1
78.3
80.4
82.6
84.8
87.0
89.1
91.3
93.5
95.7
97.8
75
1.12002
Total
Valid .01136
.01232
.01318
.01371
.01564
.01596
.01604
.01754
.01780
.01807
.01827
.01889
.01893
.02009
.02012
.02101
.02191
.02239
.02668
.02697
.02841
.02870
.02925
.02956
.03007
.03127
.03143
1
46
2.2
100.0
2.2
100.0
100.0
Dividend Yield
Frequenc Percent
Valid
Cumulative
y
Percent
Percent
1
2.2
2.2
2.2
1
2.2
2.2
4.3
1
2.2
2.2
6.5
1
2.2
2.2
8.7
1
2.2
2.2
10.9
1
2.2
2.2
13.0
1
2.2
2.2
15.2
1
2.2
2.2
17.4
1
2.2
2.2
19.6
1
2.2
2.2
21.7
1
2.2
2.2
23.9
1
2.2
2.2
26.1
1
2.2
2.2
28.3
1
2.2
2.2
30.4
1
2.2
2.2
32.6
1
2.2
2.2
34.8
1
2.2
2.2
37.0
1
2.2
2.2
39.1
1
2.2
2.2
41.3
1
2.2
2.2
43.5
1
2.2
2.2
45.7
1
2.2
2.2
47.8
1
2.2
2.2
50.0
1
2.2
2.2
52.2
1
2.2
2.2
54.3
1
2.2
2.2
56.5
1
2.2
2.2
58.7
76
.03407
.03419
.03433
.03465
.03504
.03566
.03661
.03739
.03769
.04080
.04299
.04503
.04537
.04885
.04911
.05234
.05251
.05275
.05410
Total
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
46
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
100.0
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
2.2
100.0
60.9
63.0
65.2
67.4
69.6
71.7
73.9
76.1
78.3
80.4
82.6
84.8
87.0
89.1
91.3
93.5
95.7
97.8
100.0
(1967-2013)
(Source: S&P500 Index)
77
78
The later part of the time starting from 1968 to 2013, shows that index prices have fluctuated at a
massive rate. At some points, the index price was as low as 68.56, and in the year 2013 it
enjoyed the highest of 1848.36. During the recession years, the performance of the companies
listed in this index was low. At the same time, due to presence of high performing industries in
S&P 500 index, the returns did not differentiated massively. Though some of the industries failed
to perform, the investors received proper return most of the times.
79
2000
1800
1600
1400
1200
1000
800
600
400
200
0
Figure 11: Graph showing the index of S&P 500 index from 1968 to 2013
From the above graph it can be stated that, index price was lower during years 1968 to 1994.
Since, 1996, the index kept on increasing.
Short analysis of monthly return
When the monthly returns starting from the same period are taken in to consideration, it shows
that during the years 1926 to 1967, the indexes have not differentiated highly. The prices of the
indexes ranged from 4.43 to 107.46.The index differentiation are quite higher. It demonstrated
that monthly fluctuations of shares took place. The payment of dividend by these listed
companies also fluctuated. During the later part, 1968 to 2013, the index prices crossed the mark
of 1000. On the same time, dividend payment was also increased.
Short analysis of Quarterly return
The quarterly analysis of the S&P 500 index during these particular years, reflect the same thing
as it was in case of monthly return rate. The fluctuations of indexes took place so did the rate of
payment of dividends. The stages during 1968 to 2013 displayed the positive results. During the
recession, that is post 2008 years, there was a massive fall in index price and dividend payout.
Comparison between Book to Market and Dividend Yield
80
Book to market ratio and dividend yield serve for a specific purpose. Book to market ratio is
used to find out future returns as compared to the present book value of the index. Dividend yield
on the other hand is the percentage form of dividend provided on a particular share. For this
particular series of data, the book to market ratio have produced higher figures when compared
to dividend yield.
4.3 Secondary Data Analysis

As the secondary data is meant to be collected from the sources like the magazines, newspaper,
journals, websites and the most commonly used and appropriate data has been gathered by the
previous researcher, And that is the reason that these data has the maximum chance of being the
most authenticate as well as appropriate (Penman et al. 2009).
Still, the present researcher has to check the authentication of the data whether the data that has
been used has been gathered from the exact and the reliable sources. It needs to be ensured that
the data that has been used is not arbitrary and the entire data has been organized and presented
in the proper form. The relative and the appropriate data that has been collected have to be within
the specific time limit so that the use of the excessively old and irrelevant data does not come
into force. As the entire research, matter is regarding the price of the stocks that are listed in the
S&P 500 index and these prices are subjected to change in the least amount of time. Due to the
change of the prices, the old data will be irrelevant and insignificant, the analysis will be very
difficult, and diverse if compared to the present value of the stock prices.
The authentication of the entire data will be proved, as the collected data will be represented in
the forms of the charts and the graphs as required. The primary data has the maximum chance of
being appropriate, but the authentication of the secondary data needs to be done for obtaining the
exact results.
As the data has been obtained from, the index of S&P 500 that has been collected for the specific
research needs to be explained in the thematic way. The themes that has been structured for the
particular research has to be described in the best possible way for the purpose of proving the
validity and the acceptability of the data. The use of SPSS analysis has been made to analyse the
data and interpret the results. The charts and tables used in this research are all created using this
particular software to analyse statistical data used.
81
4.4 Summary
This particular chapter is all about data analysis and findings. In this chapter, the researcher has
o0btained authentic secondary data and analysed these data properly. The pattern of rise and fall
of shares listed in S&P 500 index has been observed and analysed in proper manner.
The changes of the stock prices due to changing condition of the market have been observed in
these years. The risk factor and its relation with beta coefficient have been analysed. All the
relevant data collected for this research has been used appropriately without any biasness or
tampering. The complete set of data is valid as it is obtained from the S&P 500 index history.
The graphs and charts are created using SPSS analysis to receive exact result of the data used in
this research.
82
Chapter 5: Conclusion and Recommendation
5.1 Conclusion
This final part of the research helps the person carrying out the research to relate with the
different parameters of the index of the companies, regarding then returns. The companies listed
in S&P 500 index have been recorded with massive rate of the fall in the share prices over the
last few years.
Due to the fall of the share prices, the major companies are running out of investments. If the
history of the entire S&P 500 index starting from 19260to 2013 is clearly observed, then it is
clearly visible that in these years, the shares listed in the S&P 500 index have experienced major
crashes. But the shares have experienced major fall since the world wide recession in 2008. But
some of the industries listed in this index have experienced Massive growth even in this
particular situation also. Due to different scenarios and changing environment of the economy,
the share prices of this listed index are falling at a massive rate.
If the entire history of this index is followed, it is clearly seen that the average return during the
last year was nearly about 5.50%. If return rate for July, 2015 is observed, it will show that the
return is under 2.00%. It shows the instability of the index market. The investors with the help of
book to market ratio was alerted about this situation which resulted in the decreasing number of
investments in the recent years.
Book to market value is to find out future price of listed shares in comparison with the present
book value of the shares. Return rate can get changed at any time so it is bit difficult to receive
the exact figure of return by using book to market ratio. The use of this particular ratio has never
been used confidently, as in many cases the return rates were negative if aligned with the ratio
result.
5.2 Linking objectives with Findings and review of literature

The literature part of this research is entirely about Predictability of the market returns using
Book to market ratio. This research is all about how investors calculate book to market ratio to
find out an approximate value of returns of the specific shares listed in the index. The S&P 500
index being one of the major and one of the oldest indexes of USA, the investors of this country
83
has the optimum choice of investing in the shares listed in this index.
The objectives of this particular research is to evaluate the issues related to market returns of
different firms in related to the industry in context of the book value. The other objective of this
research is to suggest proper recommendations to the firms to solve the issues related to the ratio
of the market values.
If shares prices of the listed companies are taken into consideration, it is seen that some of the
industries have enjoyed major growth, while the others have failed deliberately. The industries
that flourished in these years are Information Technology, Energy, Banks and other consumer
products. Actually, the reasons for growth are due to massive demand of these industries in the
open market and individual demand of these products.
The failure of the industries like the restaurant, beauty products and retail market chains are due
to huge amount of competition and similar category of products sold in this market. The worst
result of this financial decline in for the mutual fund industry. Due to presence of high risk and
volatility of entire financial market, people are staying away from this industry.
The researcher wants to overcome these situations, certain recommendations are provided to the
investors and also to those listed companies facing the risk of business and running in loss. But
in the end it is advisable to the investors to make a close look in the condition of the market
before taking an investment decision. These ratios are to be used as precautionary measure and to
avoid financial loss; the results are to be followed wisely and according to present market
condition.
Objective 1: To critically evaluate the issues related to the market returns of the different firms
in related to the industry in context to the market value.
The researcher here wants to link this objective with the different main objectives of this
research. The main objectives of this particular research is all about the relation between the
book to market ratio and return s from investments from the shares listed in S&P 500 index. The
difference in return between dividend and market issue, the positive and negative features of
Book to market ratio and the macroeconomic factors that determine the return rate is linked in
this chapter of the research.
The concept of book to market ratio is all about finding out the future value of them shares
according to its present values. In USA, the investors make calculations to find out how much a
84
share price can increase in future.

This particular ratio calculation is about finding the future value of shares according to its book
value. It is one of the most widely used ratio calculation to predict growth of certain shares and
find out exactly which shares has the tendency to fall. This particular ratio has the potential to
produce nearly accurate results regarding the discrimination of the share prices. And in USA, the
use of this particular ratio has been widely used since the start of the year1900s.
In between the use of this ratio decreased, as it started to produce opposite results regarding
share price when compared to the prediction calculation. The rate of return from dividend and
from direct investment in listed shares of S&P 500 index is different in all aspects. When the
level of dividend payout is evaluated, only profit earned by a company is taken into use and
consideration. When Book to market ratio is used to find out rate of return from investment in
the shares listed in the index called S&P 500, there are different factors that are taken into
consideration.
In this scenario, there are some macroeconomic factors that control the entire market. These
factors play a huge role in determining the return and the condition of the entire index in the
future. The positive and the negative factors of this Book to market ratio is also evaluated. The
positive and these negative factors have made this particular ratio still one of the mostly used
calculative and precautionary measures to evaluate return rate from the indexed shares.
Objective 2: To suggest the suitable recommendations to the firms to solve the related issues
related to the ratios of the market value.
The industries listed under the S&P 500 index have witnessed falls in the index prices and have
also experienced negative results from calculating the Book to market ratio. Book to market ratio
has some problems that needs to be developed to reach the exact result from calculating this ratio
in future.
5.3 Recommendations
In these recent years, the shares listed in S&P 500 index have experienced major fall. The fall of
the share prices is due to some common factors like changes in the economic structure and
presence of recession in USA and other European economies of the world.
After making a detail analysis of the history of S&P 500 index starting from 1926 to 2013, it can
85
be said that except the period of recession or any major financial crisis, the performance of this
index is particularly very positive. The index needs to utilize the opportunities of business and
need to make proper and innovative restructuring of financial and operational process.
The companies running in losses need to make structural changes. The loss making listed
companies like retail sector, health care, need to perform better to turn to change losses into
profits. Mergers and acquisitions can be done to increase the level of profit. The S&P 500
indexed companies need to follow up present situations of market and act according to the
present economical situations of the USA economy. The companies listed in the S&P 500 index
should not make any sort of irrelevant monetary decision that can lead towards huge cash flow.
Huge amount of future cash flow will lead towards increasing the book value of the index and
book to market ratio will provide positive results in favour of the investors.
Development of Book to Market ratio from the perspective of the listed companies
Most of the times Book to market ratio has been able to provide positive results of returns from
the listed companies of S&P 500. It is correct that results might be negative due to some
economical factors of the entire company or the industry.
When companies are listed in an index, the returns derived are same. There are discriminations
regarding the performances of the companies listed in the index regarding profitability. But when
the profit making sectors are performing well, then the weaker industries of the index are also
getting the benefit of proper return to investors. Book to market ratio, is also very effective in
predicting market returns of the cross sectional indexes.
The problem or the area of development of book to market ratio is the ability to predict return
from the index during high risky market or during the situation when share prices are fluctuating
rapidly. This particular ratio is unable to find out appropriate book to market ratio of service
industries and for those companies that lack huge amount of physical assets. This ratio is also
unable to predict return of those companies that have merged with other company or acquired
any company.
Apart from these developments, Price to market ratio have the capability to predict positive
returns from the indexed companies.
5.4 Limitation of the research

While carrying out this research, the researcher faced some problems. As no primary data was in
86
use, the researcher had to use secondary data from various magazines, journals, and websites to
collect authentic and relevant data. Here, the data collected for research, was backdated and the
researcher had to make necessary changes and calculate values of index. The index data of S&P
500 starting from 1926 to 2013 was really difficult to interpret, so failed to provide appropriate
analysis and conclusions. The researcher did not have enough time to carry out the research
properly. There were also some problems regarding budgets for making progress in this research.
The sustained errors are still present and proper recommendation cannot be provided.
5.5 Future scope of the research

After completing this particular research, the researcher kept scope to make research on this
particular subject. There should be accurate use of Book to market ratio in future. The present
limitations of this ratio have to be minimized. The conditions of the weak industries of this index
need to make proper structuring to avoid further losses. S&P 500 index needs to sort out ways
for improving returns during the period of recession. Book to market ratio have provided
negative results many times, this needs to be more perfect considering the changes of index
prices. In future, the researchers can include both physical and non physical (Intangible assets)
assets while calculating book to market ratio. And more detailed analysis of the index starting
from 1926 can be made in a better way and approach towards more accurate results.
87
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Appendices:
Appendix 1: Graph showing the correlation and beta of S&P 500 (1900-2010)
Appendix 2: Graph showing the credit position of S&P 500 and Hedge funds (1990-2010)
93
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PREDICTABILITY OF MARKET RETURNS USING BOOK TO

Chapter 5: Conclusion and Recommendation...............................................................................57

Chapter 1: Introduction and background

1.1 Background of the Research

1.2 Rationale of the Research

1.3 Research Aim

1.4 Research Objectives

related to the industry in context to the market value.

1.5 Research Questions

certain firms for boosting up the market ratio?

1.6 Research Hypothesis

1.7 Significance of the Study

1.8 Structure of the Dissertation

CCC hhaphaph apter

Chapter-2 Literature review

2.1 Previous research works:

2.2 Conceptual framework

etail analysis of the macroeconomic factors that changes

Relation between market returns and book to market

Figure 2: Conceptual framework

2.3 Relation between market returns and book to market

2.4 Macroeconomic environment affecting stock returns predictability

Controlling the rate of free supply of money

2.5 Fundamentals of Book to Market ratio

2.8 Reasons for choosing Book to Market ratio

2.9 Positive features of Book to market ratio

Future estimation of return rates that proved to be positive in many cases.

listed in S&P 500 index.

2.10 Negative features of book to market ratio

crash in 2008 (Cameron, 2009).

2.11 Comparison between previous research and existing research work:

Chapter-3: Research Methodology

3.1 Method Outline

3.2 Research Onion

Figure 3: Research Onion

3.3 Research Paradigm/Philosophy

Figure 4: Research Philosophy

3.3.1 Justification for selecting positivism

3.4 Research Approach

Figure 5: Research Approach

3.4.1 Justifying the use of Inductive approach

3.5 Research Purpose

Figure 6: Research Design

3.5.1. Justification for Analytical Design

to able to provide required

information about the research work.

3.6 Research strategy

3.7 Methods of Data collection

3.7.1 Secondary data collection

3.7.2.2 Qualitative Data collection

3.8 Secondary Data Analysis

3.9 Ethical considerations

3.10 Time schedule considered to perform research (Gantt chart)

3rd week 10th

week 21st week 24th week

Table 1: Gantt chart

Chapter 4: Data analysis and Findings

Last 1 year growth

last 1 year growth rate

Growth of the industries

Last 1 year growth

Last 1 year growth

Last 6 months growth