The effect of company size, beta coefficient and dividend policy on stock returns: An application in ISE industrial index

There are numerous works in the finance literature which emphasize on expected returns and risks for future investments. Those works are based on the idea of the researcher that the factors that he is using would determine the relation between expected return and risk. In this thesis we chose stocks as an investment tool. Also, we preferred beta coefficient, dividend policy and firm size as factors which may affect our investment. To describe the effect of those factors on our investment, we chose stocks which were performing in the Istanbul stock exchange industrial index between January 2000 and September 2013. We then calculated the return of those stocks within January 2002 - June 2013. In order to show the effect of those factors we built seven main portfolios. These portfolios are based on the firms that we selected for our research purpose. We divided those firms according to each factor: for beta coefficient we divided those firms into two portfolios (the firms with a beta coefficient below 1 and the firms with a beta coefficient above 1); we divided those firms into two groups according to their dividend policy (dividend-paying companies and non-dividend-paying companies); lastly we divided those firms into three portfolios in accordance with their size (we divided firms as small, medium and big). In our research we also tried to show the effect of dual combination of the factors that we have chosen. In order to show the effect of dual combination of those factors we created 16 sub portfolios. We monthly calculated the return of those portfolios and we also yearly reconstructed them according to each factor. In order to determine the real effect of those factors we calculated mean, cumulative return, standard deviation, and we used risk adjusted performance measures of each portfolio and compared them to each other.