الفهرس 
Chapter One: IntroductionOnly 14 pages are availabe for public view
 |  | from | 120 |  |  |
| | | from | 120 | | |
Abstract
5.1 Conclusion:-
Predicting future stock return has attracted the attention of numerous researchers around the world for decades. Several variables have been examined and several models were proposed in an attempt to predict average stock return. However, till now there is no consensus among researchers on the relevant variables that explain average stock return in each market.
The first attempt in predicting stock return was that of Sharp ( 1964) and linter (1965) who established the capital asset pricing model implying that stock return is determined by market risk only as firm-specific risk can be washed-off via diversification. The capital asset pricing model has achieved popularity among many academics and practitioners and many of them are still relying on the CAPM in predicting future return and in taking their investment decisions.
However, many researchers have criticized the CAPM for its unrealistic assumptions. As a result, some studies tried to provide extensions for the CAPM. For example, Black (1972) presented the black capital asset pricing model by removing the assumptions of risk free borrowing and lending. Merton (1973) introduced the intertemporal Capital asset pricing model (ICAPM) which suggested that trading in assets takes place continuously over time. Breden (1979) developed the consumption Capital asst pricing model (CCAPM) which suggests that the level of investors future consumption should be taken into consideration when predicting average stock return.
Although the efforts exerted in improving the capital asset pricing model and extending it, several studies found evidence on the failure CAPM and all of its extensions. In addition to that, these studies suggested that it is extremely important to add more variables to market risk to better predict average stock return.
Fama and French (1993) presented a model that adds firm size and book to market equity ratio to stock beta in an attempt to provide a model with a better explanatory power than the traditional capital asset pricing model. Fama and French presented evidence on the ability of their three variable model in predicting average stock return in the United States stock market.
Many researchers examined the ability of the new model in explaining variations in stock return in both developed and emerging markets and it was found that Fama and French three variable model plays a significant role in most markets. Studies that compared between the performance of the capital asset pricing model and Fama and French three variable model are numerous and most of them proved that Fama and French three variable model is better than the CAPM. (Fama and French, 2006; Daniel and Titman, 1997; Daniel and Titman, 2001; Gaunt, 2004; Taneja, 2010)
Other researchers suggested that variables other than firm size, Book-to-market equity ratio and stock beta should be taken into consideration when predicting future stock return such as profitability, liquidity, investment and momentum. Profitability has been examined by many researchers whose results suggested that it plays an important role in explaining stock return variations in many developed and emerging market. The predictability power of firm investment has also been examined by several studies and it was found to be significant in some markets. (Chen et al., 1991; Lam et al., 2002; Pritchard, 2002; Titman et al., 2004; Fama and French, 2006; Cooper et al., 2008; Shabitax and Alswalhah, 2013)
As a result of the previous background, it is apparent that there is no agreement among researchers on the variables affecting stock return in different markets. This study aims to examine the effect of five variables (namely, stock beta, firm size, book-to-market equity ratio, profitability and investment) on stock return in the Egyptian stock market in the time period from 2010 to 2015.
The study sample consists of all firms listed in EGX 30 index excluding five firms due to data unavailability. Panel data regression was conducted on the sample firms. Furthermore, cross section fixed effect test and period fixed effects test were also conducted in order to examine the effect of the industry and time period on the return predictability. Moreover, single regression was used in order to find out the predictability power of each of the five variables. The multiple regression results showed that the model is able to explain (65.5%) of total variation in return which is an acceptable percentage. Size was found to be the most significant variable affecting stock return as it was found that there is a significant positive relationship between size and stock return. Such result is consistent with Eraslan (2013), Taneja (2010) and Tahir et.al. (2013). However, it is inconsistent with Shaker and Elgiziry (2014) who examined the size effect in the Egyptian stock market in a time period 2003 to 2007.
Multiple regression revealed that Book-to-market equity ratio is insignificant and plays no role in explaining stock return variation in Egyptian stock market. In contrast, single regression results showed that there is a significant negative relationship between Book-to-market equity ratio and stock return in Egyptian stock market which is consistent with Shaker and Elgiziry (2014).
Both multiple and single regression results demonstrates that stock beta, profitability and investment are insignificant variables in explaining stock return variation and they shouldn’t be considered when taking investment decisions.
In short, the main finding was that size plays a major role in explaining average stock return variation. Book-to-market equity ratio was found to have a moderate effect on stock return. While, market beta, profitability and investment were found to be insignificant and plays no role in explaining variation in stock return in the Egyptian stock market. It worth mentioning that the study unexpectedly revealed that there is negative relationship between the lag return (return of the previous year) and stock return.
Study Recommendations:
Recommendations for investors: The main recommendation for investors is to consider firm size and the return of the previous year when making investment decisions in the Egyptian stock market. It is also recommended that they should not rely on stock beta, profitability and investment when predicting future stock return in Egypt.
Recommendations for Business Schools: Risk variables other than market risk should be given more concern in the Academic Curriculum, if they have not been given what they deserve.
Recommendations for Academics: in this study only five variables were examined, more variables such as momentum, liquidity, and behavioral variables can be examined in an attempt to find out variables affecting return in the Egyptian stock market. Moreover, future studies may examine the same variables over a longer time period.