The aim of this paper is to investigate whether it is possible to achieve a higher return than a simple buy-and-hold strategy in a benchmark index, by utilizing fundamental- and technical analysis methods. The efficient market hypothesis states that it is not possible to consistently outperform the overall stock market by stock picking and market timing. This is because, in an efficient market, all relevant information about the company are already incorporated in the stock price and because of this it is not possible for the investor to gain any advantage in trying to determine the future direction of the price. Nevertheless, deviations from true price can occur according to the hypothesis, but when it does, it is always random. However, the efficient market hypothesis is very controversial and there are strong arguments both for and against it. To help illuminate whether it is possible to outperform the market and thereby also contradict the efficient market hypothesis, several fundamental- and technical analysis methods will be tested. The methods in focus are the multiples Price-to-earnings (P/E), Price-to-book (P/B) and Enterprise value to earnings before interest, depreciation and amortization (EV/EBITDA). The paper will test whether investing in the stocks with a P/E, P/B and EV/EBITDA value in the 10th percentile each year, with a holding period of one year, can generate higher returns than the buy-and-hold strategy in the benchmark index. Furthermore, the FSCORE method will be tested following the process conducted by Piotroski (2000). The technical analysis methods tested in this paper includes the Relative Strength Index and moving averages, which use historic daily stock prices to determine trade signals. The paper concludes that it is not possible to achieve a higher return than a simple buyand-hold strategy in a benchmark index, by utilizing fundamental- and technical analysis methods. However, the study did reveal that the methods where able to generate higher risk adjusted return than the benchmark index, as well as a lower maximum drawdown.
|Educations||Graduate Diploma in Finance, (Diploma Programme) Final Thesis|
|Number of pages||103|