Referring to my previous article of "EMFPS: How Can We Obtain “Beta” to Analyze CAPM?" on link: http://emfps.blogspot.com/2011/09/emfps-how-can-we-obtain-beta-to-analyze.html, let me explain you the next
steps by an example as follows:
1) Without any dividends:
Assume the data of Company “M” from Jan 3, 2005 to Dec 1, 2010
is below cited:
Date
|
Open
|
High
|
Low
|
Close
|
Avg Vol
|
ADj Close*
|
Jan 3, 2005
|
4.74
|
4.92
|
4.7
|
4.88
|
792,600
|
4.21
|
--------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
Dec
1, 2010
|
5.74
|
6.52
|
5.74
|
6.23
|
4,193,000
|
6.23
|
The data of the related Stock Index of the company is as follows:
Date
|
Open
|
High
|
Low
|
Close
|
Avg Vol
|
Adj Close*
|
Jan 3, 2005
|
907.02
|
940.94
|
897.13
|
916.27
|
54,441,400
|
916.27
|
--------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
Dec 1, 2010
|
1,482.69
|
1,529.95
|
1,477.57
|
1,518.91
|
141,888,300
|
1,518.91
|
-To calculate the return rate for both Company and Stock
Index, we can use below formula because there is not any dividends:
Ra = (Pt – Pt-1) / Pt-1
Ra = the return rate for Stock Index and Company
P t-1 = Close price on Jan 3, 2005
Pt = Close price in the next month
-On excel spreadsheet, calculate one cell by using of above
formula and copy on all cells related to next months until Dec 1, 2010.
-Now, you have all rate of return for each month (Company
and Stock Index). Calculate the average for Stock Index only
-Multiply the average of Stock Index by 12 to obtain the
rate of return annually (Rm) which is utilized to analyze
CAPM
-Use from excel formula to calculate covariance of the
return rate for both Company and Stock Index:
=COVAR (Array1, Array2)
Where:
Array 1 = all return rate of Company
Array 2 = all return rate of Stock Index
-Use from excel formula to variance of return rate for
Stock Index:
= VAR (number1, [number2]…..)
-Calculate the Beta of Company: COVAR (Ri,Rm) / VAR (Rm)
According to my spreadsheet, I obtained the Beta to be equal
1.501137
2) With dividends:
Now, we assume that the company had paid the dividends as
follows:
Date
|
Dividends
|
|||||
17-Jan-07
|
0.05
|
|||||
27-Jul-
07
|
0.05
|
|||||
29-Oct-08
|
0.25
|
|||||
29-Jul-09
|
0.05
|
|||||
28-Jul-10
|
0.11
|
|||||
We should look at the date of dividend and improve the
company’s return rate accordingly on our spreadsheet by using of below formula:
Ra = [D + (Pt – Pt-1)] / Pt-1
Where:
Ra = the return rate of Company
D = dividend
Pt = Close price for month after dividend date
Pt-1 = Close price for month before dividend date
I calculate the Beta of the Company which is equal to 1.499519
Why are they approximately the same (without and with
dividend)?
Because when the company paid the dividend accordingly its
share price fell down which shows us the dividend policy of the company. I can say
to you this dividend policy is not wrong because the Beta of with dividend is
not more than the beta of without dividend.
Conclusion
As the
result of this article, I would like to compare the market return of this
company with historical market return of the world (see sheet 4 of my
spreadsheet).
I calculated
annually return rate of Company “M” by adding all monthly return rate (with dividends)
then I used from historical returns mentioned on below link:
To analyze the Beta, I got the gradient as follows:
Beta = Delta (company’s return) / Delta (Market
return)
Here is my data:
Year
|
Rc
|
Rm
|
|
2005
|
-7.67%
|
4.83%
|
|
2006
|
64.12%
|
15.61%
|
|
2007
|
-3.31%
|
5.48%
|
|
2008
|
-49.42%
|
-36.58%
|
|
2009
|
39.61%
|
25.92%
|
|
2010
|
41.53%
|
14.86%
|
Where:
Rc = the return rate of Company
Rm= the return rate the whole of the market
Year
|
Beta
|
|
2006
|
6.659839
|
|
2007
|
6.656976
|
|
2008
|
1.096235
|
|
2009
|
1.424453
|
|
2010
|
-0.17352
|
|
B (av)
|
3.132797
|
|
As we can see, in this case, the
average of Beta is not important but the trend
of the Beta is very contemplative. I remember that I wrote an article of “ New Economic System” on below link:
Maybe this method to analyze the Beta
will lead us toward the better
perception and analysis of economic systems.
Note:
“All spreadsheets and calculation notes are available.
The people, who are
interested in having my spreadsheets
of this method as a template for further
practice, do not
hesitate to ask me by sending an email to
: soleimani_gh@hotmail.com or call
me on my cellphone:
+989109250225.
Please be informed these spreadsheets are
not free of charge.”
|
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