Academic journal article European Research Studies

Methods of Analysis of Equity Securities Risk and Return: Issues and Prospects

Academic journal article European Research Studies

Methods of Analysis of Equity Securities Risk and Return: Issues and Prospects

Article excerpt

1. Introduction

1.1 Introduce the Problem

In the modern environment of Russian economy growth, activation of the participants of corporate equity securities market is a highly relevant issue. A strong need for solving this problem is explained by a great role of this market in the process of creating and redistributing investment resources and by the stabilization of the country's economic growth. It becomes an especially important problem when regarding Russian Federation credit downgrade by the international rating agencies.

The basic quality criteria of a stock, as well as any other security, is its return and risk. Investing into equity securities, a real or a potential investor need to assess the stocks from two point of view: on the one hand, he needs to define the correlation between risk and return; on the other hand, he needs to explore qualitative and quantitative aspect of this correlation. Consequently, the main problem any financial analytic faces is to define certain characteristics and obtain the necessary information about stocks investment attractiveness which directly depends on the efficient use of available evaluation methods of equity securities risk and return.

1.2 Importance of the Problem

Theoretical and methodological aspects of equity securities studying may be presented as a scheme the main components of which are: categories; regulatory principles characterizing correlation between return, risk and market efficiency; as well as scientific techniques which contain the methods of fundamental and technical analysis of equity securities. The existence of many methods is the result of presence of fundamentalist and technocratic approaches to the evaluation of equity securities.

For effective monitoring and analysis of the market potential, forecasting equity securities investment attractiveness as concerns risk and return, a complex use of various methods of fundamental and technical analysis and development of the system of criteria for investment attractiveness evaluation by different groups of users is an acute problem. It is necessary to solve this problem with the aim to improve the quality of business culture in joint stock companies, make the business more transparent and create certain conditions for business growth in various spheres of the economy. Major methodological recommendations may be used for developing departmental regulatory instruments associated with the growth of the corporate equity securities markets in certain regions and territories. This research paper is devoted to this issue.

1.3 Relevant Scholarship

In Russian economic literature many authors pay attention to the problems of the development of corporate equity securities market in general, and to the stock market, in particular. Among them are Anesyants (2005), Grishaev (1997), Zhukov (2014), Kilyachkov (2015) and other economists.

The works of Galanov (2008), Ginzburg (2003), Karminskiy (2005), Kovalev (2007), Limitovskiy (2008), Litovtchenko (2013), Lyubushin (2013) and of the foreign authors Buffett (2013), Bernstein (1995), Graham (2008), Keynes (2011), Stephen (2000), Veale (2014), Fisher (2012), Sharpe (1999) and others provided the theoretical and methodological basis of our research.

However, in Russia the authors fail to pay enough attention to the development of equity securities market and associated issues, focusing on exploring the banking sector as the major source of financing of economy. In particular, there is lack of shared vision concerning methodology of equity securities research; evaluation of stock market value based on risk, return and the level of corporate culture in joint stock companies is not carried out; attention is not paid to increasing the quality of information management among the stock market participants. Among the less examined issues of the Russian economy are the use of methods of fundamental and technical analysis for monitoring and forecasting stock risk and return. …

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