The analyse of company-specific factors effects on ISE stock returns for the period 1992-2005

IIABSTRACTTHE ANALYSE OF COMPANY-SPECIFIC FACTORS EFFECTS ON ISE STOCKRETURNS FOR THE PERIOD 1992-2005Ahmet ERİŞMİŞMaster Thesis, Business DepartmentSupervisor: Prof.Dr. Serpil CANBAŞJanuary 2007, 101 PagesThe effect of firm-specific factors on stock returns and determining the explanatorypowers of these factors is one of the most popular topics for academics in finance world forlate years. In this study, the effects of firm size and book-to-market equity on ISE stockreturns were examined for the period 1992-2005. Four different asset pricing models wereused in explaining the stock returns. The first of these models is one- factor Capital AssetPricing Model (CAPM). The second model is a two-factor model that includes market factorand firm size factor. The third model used in analysis is another two-factor model whichincludes market and book-to- market equity variables. The fourth and last model is three- factormodel which was described in Fama-French (1993) study that includes all three factors.Analysis results suggest that all three factors effect the stock returns. Additionally, small firmsprovide higher returns when compared with big firms. Similarly, firms that have high B/Mequity provide higher returns than firms that have low B/M ratio. Also; Fama-French three-factor model is determined as the most explanatory model between the analysed models.Key Words: Stock return, Firm size, Book-to-Market ratio, Fama-French three factormodel, ISE.