Cullinane Shipping Economics CH04 - Ship PDF

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4. CROSS-INDUSTRY COMPARISONS
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OF THE BEHAVIOUR OF STOCK
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RETURNS IN SHIPPING,
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TRANSPORTATION AND OTHER
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INDUSTRIES
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16 Manolis G. Kavussanos and Stelios N. Marcoulis
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19 1. INTRODUCTION AND AIM OF THE PAPER
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21 The aim of this paper is to review the empirical work in the area of shipping finance,
22 which deals with the companies in the shipping sector that have taken the decision
23 to resort to the public capital markets in order to finance their activities. More
24 specifically, the paper is concerned with the performance of listed companies in
25 stock exchanges around the world. The pricing of stocks in the financial markets
26 is a result of the collective action of investors analysing the stocks and taking
27 action while pursuing profit making opportunities. If markets work efficiently, the
28 characteristics of stocks as determined in these markets should reflect past, present
29 and future prospects of the stocks and their sector, and must be the best indicator
30 upon which to base decisions.
31 To put things in perspective, the history of the shipping industry is inextricably
32 linked with the world economy and its economic and technological development.
33 As Adam Smith (1776) notes, “shipping is one of the major catalysts of economic
34 development. . . . shipping is a cheap source of transport which can open up wider
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37 Shipping Economics
Research in Transportation Economics, Volume 12, 107–142
38 Copyright © 2005 by Elsevier Ltd.
39 All rights of reproduction in any form reserved
40 ISSN: 0739-8859/doi:10.1016/S0739-8859(04)12004-0
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108 MANOLIS G. KAVUSSANOS AND STELIOS N. MARCOULIS
1 markets to specialisation, offering shipment of even the most everyday products

2 at prices far below those that can be achieved by any other means.” Over 95%
3 of world trade in volume terms moves by sea. Over the past years specialization
4 of activities has taken place in shipping transportation itself. Ship design and ship
5 building technology, investment in infrastructure such as ports and port equipment,
6 logistics and warehousing have allowed for that.
7 In discussing the structure of the industry, one should be concerned with the way
8 business is organised to achieve the efficient transport of different kinds of cargo.
9 The major division within the cargo carrying part of the industry is between bulk
10 and liner shipping. The former specialises in the transport of large cargo parcels
11 which can be carried on a one ship one cargo basis. Thus, tramp ships travel on any
12 sea-lane around the world in search of such cargoes to transport. Liner ships, on the
13 other hand, specialise in the transportation of small cargo parcels, usually carried
14 in containers. These ships provide regular services on specific sea-lanes around
15 the world. Other segments of the water transportation industry include passenger
16 vessels, ferries, tugs and other ancillary services, among others.
17 The bulk, liner and other segments of the water transportation industry have
18 totally different approaches as far as the type of organisations involved and the
19 respective shipping policies are concerned. For example, liner operators need to
20 organise the transport of many different parcels (usually in containers in our days)
21 and need a large shore-based staff, capable of dealing with shippers, handling
22 documentation and planning the ship loading. Hence, due to their high overheads
23 and also the need to maintain a regular service even when a full payload of cargo
24 is not available, the liner business is vulnerable to uneconomic price competition
25 from other shipowners operating on the same trade routes.
26 Contrary to that, the bulk shipping companies operate under the principle of “one
27 ship – one cargo” and hence handle fewer, but much larger cargoes. Therefore,
28 their operations do not require a large shore-based activity. Nevertheless, the
29 few decisions that need to be made by a bulk shipping business are crucial
30 and require the attention of the owner and/or vice-president. Large companies,
31 shipping substantial quantities of bulk materials, often run their own shipping
32 fleets to handle a proportion, or all, of their transport requirements. For example,
33 according to Jacobs (1986), in 1984 the major oil companies collectively
34 owned around 40% of the whole world tanker fleet. However, it should be
35 stressed that industrial conglomerates do not necessarily become shipowners
36 just to optimise the shipping operation. It is also to ensure that basic transport
37 requirements are met at a predictable cost without the need to resort to the charter
38 market.1
39 Another sector of the industry is cruise shipping. This sector is linked very much
40 to the tourist and leisure industry. Despite utilizing a ship, the service provided is
Cross-Industry Comparisons of the Behaviour of Stock Returns 109
1 entirely separate from that of the cargo carrying sector; it is leisure and tourism
2 provided on board a ship. The ferry subsector of the shipping industry is also
3 affected by tourism and the movement of passengers, but also by the movement of
4 cargo. Despite its seasonal nature, part of the demand for its services emanate from
5 quite a steady movement of cargo carrying lorries in certain routes. The economic
6 forces driving the demand and supply factors are distinct then. Other shipping
7 linked sectors involve yards and offshore companies, and these form important
8 parts of the total – the world shipping industry.
9 In our days, with the development of the concept of door to door service for
10 products, specialized agents are involved in providing such logistical services.
11 The final customer can stop worrying about arranging transportation by several
12 modes of transport, the handling in between and the security issues involved before
13 getting his hands to the final product. Of course this involves the question of
14 considering other modes of transport in the supply chain process. Again, the large
15 sums of money involved in investment and infrastructure suggest that perhaps the
16 performance of listed companies in other modes of transport are relevant. This
17 is discussed later on as well from the point of view of the investor, who is not
18 necessarily involved in the physical operation of the transportation service, but is
19 interested in investing in portfolios with transportation stocks.
20 A major question then throughout the years has been how to finance investments
21 in this highly capital-intensive industry. Ships cost millions and such large sums
22 need careful investment decisions. Methods of financing have varied over time and
23 place, as well as with the corporate structure of the company requiring funds to
24 invest in shipping. Thus, while traditional borrowing from banks2 has always been
25 prominent in the industry, charter backed finance3 has been very popular in the
26 post second world war period. This has been followed by asset backed finance in
27 the 1980s (e.g. ship funds), and since the 1990s – a lot of interest has been placed in
28 drawing funds from the public. The latter may be materialised either by borrowing
29 through bonds, or by offering part-ownership to the public through shares in the
30 company.
31 This paper concentrates on this last form of finance of the industry. In particular,
32 it concentrates on alternative valuation models of shares of water transportation
33 companies. It examines single index models under which the market index alone is
34 assumed to be driving market returns, and then extends this to multi index models
35 as sets of micro economic and macroeconomic factors are considered as possible
36 additional factors determining security returns. Security valuation models are also
37 considered for stocks of other transportation industries and some other industries.
38 International comparisons are also made by considering valuation issues through
39 the formation of industries at the global level. At this global level, distinction is
40 made in the shipping industry of a number of subsectors, and the characteristics
1 of these subsectors are compared between themselves. This investigation enables

2 comparisons of risk-return trade-offs between industries and subsectors of the
3 international shipping industry, a process which takes place by investors when
4 taking practical investment decisions. The availability of listed companies in stock
5 exchanges for each industry allows investors, by observing share price formation,
6 to get a view of the market value of companies in each industry through the interplay
7 of demand and supply forces driven by experts dealing in these stocks.
8 Despite the significance of the water and other transportation sectors and the
9 use of industry indices in investment decisions, there has been limited work in
10 attempting to compare the risk-return performances of these industries: (1) in a
11 capital markets context; and (2) in a comparative cross-industry context using asset
12 pricing models. Equally limited attempts have been made to uncover factors, other
13 than the market, that may influence returns in these industries. This might be due
14 to the fact that since the seventies the sectors which provided superior returns to
15 investors were, according to Jones (1993), the finance sector and, after the crash of
16 1987, the industrial sector. The exception to this lack of published work in the area
17 is a series of studies by Kavussanos and Marcoulis (1997a, b, c, 1998, 2000a, b),
18 Kavussanos et al. (2002) and Kavussanos et al. (2003).
19 Nevertheless, such industry analysis would be revealing for investors in the water
20 and other transportation industries, portfolio managers and corporate financiers
21 since it would enhance investment decisions, possibly induce investors to place a
22 different share of their investment funds in these industries and also shed some
23 further light as to what drives values in these industries.
24 The significant amount of research produced in recent years on the concept of
25 efficient markets has shaped, to a large extent, the way academics and practitioners
26 think about the stock selection process. More specifically, there are two well-known
27 approaches to analysing and selecting stocks, fundamental and technical analysis.
28 Traditionally, the former approach has occupied the majority of resources devoted
29 to the analysis of common stocks and it is concerned with the valuation of stocks
30 according to fundamentals such as gearing ratios, book to market ratios, size and
31 many more. The other approach mentioned, technical analysis, deals with the
32 search for identifiable and recurring stock price patterns and attempts to exploit
33 market inefficiencies.
34 The research mentioned above deals with fundamental analysis, the study of
35 a stock’s value using basic data at microeconomic and macroeconomic level.
36 Fundamental analysis is based on the concept that any stock has an intrinsic value
37 which is a multidimensional function of the general state of the economy (e.g.
38 industrial production, inflation, oil prices etc.), the market, the structure of the
39 industry the company operates in, and the company’s fundamental microeconomic
40 factors (e.g. capital structure, book-to-market ratio, market capitalization, etc.).
1 This paper is organised as follows. The next section discusses the decision
2 process of the investor when analysing and selecting stocks, and the determinants
3 of stock returns that enter his decision function. Section 3 discusses the decision
4 process by investors when analysing and selecting stocks at the micro and macro
5 economic level. Section 4 extends further this process, outlining why industry
6 analysis makes sense and that it is part of the investors decision rule. Section 5
7 describes the industry classification systems that may be used to define industrial
8 sectors, such as the Standard Industrial Classification (SIC) system, the Bloomberg
9 and the Morgan Stanley classifications. Section 6 presents the major findings of
10 the research in shipping economics and transportation industries. The final section
11 concludes and discusses the possibilities that this research presents for applications
12 by industry practitioners.
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15 2. THE DECISION PROCESS OF THE INVESTOR IN
16 ANALYSING AND SELECTING STOCKS
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18 It is important to understand the way investors analyse and select stocks during
19 their investment decision process. More specifically, it is important to understand
20 that investors perform industry analysis during their investment decision process.
21 This in turn places the question of how the universe of companies can be classified
22 into industries. Kavussanos and Marcoulis (2001), for instance, classify stocks into
23 industries based on the SIC (Standard Industrial Classification) index. An equally
24 important question is the identification of possible factors that drive returns for
25 these stocks.
26 To turn to the last question first, Kavussanos and Marcoulis (2001) deal
27 with fundamental analysis, the study of a stock’s value using basic data at
28 microeconomic and macroeconomic level. Fundamental analysis is based on the
29 concept that any stock has an intrinsic value which is a multidimensional function
30 of the general state of the economy (e.g. industrial production, inflation, oil prices
31 etc.), the market, the structure of the industry the company operates in, and the
32 company’s fundamental microeconomic factors (e.g. capital structure, book-to-
33 market ratio etc.).
34 It is important to start any analysis dealing with stocks by assessing the
35 state of the economy which explicitly influences investors’ everyday investment
36 decisions. For example, if a recession is likely, or under way, stock prices will be
37 heavily affected (they are likely to drop) at certain times during the contraction.
38 Conversely, if a strong economic expansion is under way, stock prices will
39 be heavily affected (they are likely to rise), again at particular times during
40 the expansion. For instance, in 1997 when the world economy was performing
1 exceptionally well, unprecedented rises were fuelled in stock markets all round
2 the world.
3 Having completed an analysis of the economy an investment manager usually
4 performs industry analysis. King (1966) was the first to present evidence that there
5 is an industry factor affecting the variability in stock returns. Individual industries
6 tend to respond to general market movements, but the degree of response can vary
7 significantly due to the fact that industries undergo significant changes over both
8 short and long periods of time. Furthermore, different industries are affected, to
9 different degrees, by economic recessions and expansions. For example, the heavy
10 goods industries will be severely affected in a recession (e.g. the auto and steel
11 industries in the recession of 1981–1982). On the other hand, consumer goods
12 industries might be much less affected during such a contractionary period.
13 Of course the opposite occurs when the economy is growing where income may
14 be spent on investment or consumption goods. According to Begg, Fischer and
15 Dornbusch (1987), when an increase in investment occurs, it raises income by a
16 large amount (the investment multiplier), which in turn may produce an increase
17 in demand for the product (the income accelerator) generating demand for more
18 investment goods, so that the economic system expands rapidly. Eventually, labour
19 and capital become fully utilised and the expansion is sharply halted, throwing the
20 whole process into reverse.
21 During a severe inflationary period, such as the late seventies and early eighties,
22 regulated industries, such as utilities, were severely hurt by their inability to pass
23 along all price increases. Finally, from time to time, there appear to emerge new
24 “hot” industries which enjoy spectacular growth. Examples that come to mind
25 include genetic engineering and synthetic fuels and more recently dot.coms.
26 Once the investment manager has performed economy, market and industry
27 analysis, he has to shift his emphasis on to company analysis. Security analysts
28 focus on a number of factors which are important in analysing a company. These
29 can be divided into two wide categories, qualitative factors and quantitative factors.
30 Qualitative factors focus mainly on the managerial capacity of the company and
31 its future prospects, which are fundamental to its success. Quantitative factors
32 focus mainly on past and present income statements and the balance sheets of
33 a company and include variables such as earnings, price-to-earnings multiples,
34 dividend yields, capital structure, book-to-market ratios, size etc.
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37 3. THE DETERMINANTS OF STOCK RETURNS –
38 GENERAL LITERATURE SURVEY
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40 Experience has shown that stock analysis and selection procedure is not an easy
task and as such it is not surprising that a substantial part of the financial literature
1 has dealt with the issue i.e. the determinants of stock returns at the microeconomic,
2 company level, and at the macroeconomic level. Numerous academics have
3 followed the example of King (1966) who is believed to be the first to study
4 the determinants of stock returns. His study, utilising statistical methodologies of
5 that time concluded that stock price changes can be expressed in terms of a market,
6 an industry and a company effect. Effectively, what King proposed was that stock
7 prices are shaped and determined by developments at the macroeconomic level,
8 which in turn affect industries and the stock market in general, and by developments
9 at the microeconomic level which affect the company’s fundamentals, hence its
10 value. King’s findings were extremely important and were going to be the basis
11 for a substantial amount of academic research which was to follow.
12 It is one of the aims of this part of the paper to very briefly review the voluminous
13 literature regarding the determinants of stock prices. One of King’s findings, that of
14 the market effect, was to be presented in a more formal way by Sharpe (1964) and
15 Lintner (1965) and was to shape the way academics and practitioners perceived
16 asset returns for a long time to come. The reference point is the Capital Asset
17 Pricing Model (CAPM) which expresses the stock returns of any company as a
18 linear function of just one factor, the return on the market portfolio of assets.
19 The CAPM splits asset risk into two components, market or systematic risk,
20 representing that portion of asset risk related to the riskiness of the market, and
21 residual or non-systematic risk, which is unrelated to market movements. These
22 ideas are summarised in Eq. (1).
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R jt = R ft + ␤j (R Mt − R ft ) + ␧jt (1)
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25 . . . where Rjt , Rft , RMt are the returns of company j, the risk-free rate and the
26 market return, respectively, measured over time, t, ␤j is a measure of market risk
27 and ␧jt is the error term which captures residual risk.
28 However, during the late seventies and the early eighties, the discipline of finance
29 and financial economics evolved and as computers became more powerful, a
30 number of theoretical and practical criticisms regarding the validity of the CAPM
31 arose. For example, Roll (1977) criticised the CAPM on the grounds that the
32 composition, let alone the return, of the true market portfolio is not known to the
33 researcher; what became widely known as the Roll Critique of the CAPM.
34 Others, such as Banz (1981), Basu (1977, 1983), Reinganum (1981), Lakonishok
35 and Shapiro (1986), and Fama and French (1992), among others, observed that
36 small firms appear to consistently earn higher returns than big firms, the well
37 known “size effect.” The economic rationale behind the “size effect” has been a
38 puzzle and attempts have been made to explain it by arguing that: (1) returns for
39 small firms have been computed in a way that biases them upwards; (2) the risks
40 on small firms have been understated; and (3) size may act as a proxy for some
other economic influence.
1 Stattman (1980), Rosenberg, Reid and Lanstein (1985), Fama and French
2 (1992), among others, found that there is a positive relationship between the
3 average stock returns of U.S. stocks and their ratio of book value of equity,
4 BE, to market value of equity, ME. A similar relationship is documented for
5 Japanese stocks by Chan, Hamao and Lakonishok (1991). Companies with a high
6 BE/ME ratio are believed to be “value” stocks, while companies with a low BE/ME
7 ratio are believed to be “growth” stocks. Generally speaking, “growth” stocks are
8 stocks exhibiting rapid increases in earnings and that is why their market value of
9 equity, reflecting their hypothetical excellent prospects, may be significantly higher
10 than their book value of equity. On the other hand, “value” stocks are stocks whose
11 market price seems to be low relative to their net worth. The empirical evidence
12 suggests that “value” stocks seem to outperform “growth” stocks.
13 However, “value” and “growth” stocks may also be categorised by their earnings
14 to price (E/P) ratio, the inverse of the well-known and widely used P/E (Price
15 Earnings) ratio. Relatively low values of this ratio characterise “growth” stocks,
16 while relatively high values characterise “value” stocks. Therefore, an interesting
17 question that arises is whether there is any relationship between stock returns
18 and their E/P ratios. Ball (1978), Reinganum (1981) and Basu (1983) argue
19 that E/P ratios help to explain the cross-section of average returns on U.S.
20 stocks.
21 Another variable which has been the subject of empirical tests regarding
22 the explanation of the cross-section of stock returns is leverage. Bhandari
23 (1988) defined leverage as (Book Value of Total Assets minus Book Value of
24 Equity)/(Market Value of Equity) and found that stock returns are positively related
25 to market leverage. Fama and French (1992) included leverage, among a number
26 of other variables, in an attempt to explain the cross-section of U.S. stock returns
27 and, in line with Bhandari (1988), found a positive relationship between market
28 leverage, defined as the ratio of Total Assets/Market Value of Equity (A/ME)
29 and stock returns. Furthermore, they defined book leverage as the ratio of Total
30 Assets/Book Value of Equity (A/BE) and found a negative relationship between
31 this ratio and stock returns.
32 An excellent discussion of the above determinants or “anomalies” of stock
33 returns can be found in the seminal paper of Fama and French (1992), who employ
34 a multifactor model to estimate the influence of the aforementioned factors on the
35 cross-section of U.S. stock returns.
36 The discussion so far has focused on a number of determinants of stock returns
37 which, with the noticeable exception of the market, share a common characteristic,
38 they all affect the company at the microeconomic level. An equally voluminous
39 amount of literature exists with regards to macroeconomic factors which are also
40 believed to have a role to play in the determination of stock returns. As in the case
1 of the microeconomic factors, it is not possible to review all the papers dealing
2 with macroeconomic factors and stock returns. However, an attempt will be made
3 to review a number of the most important ones so as to obtain an insight of the
4 role of the macroeconomy in the explanation of stock returns.
5 The effect of macroeconomic factors on stock returns can be thought to be a
6 consequence of the pricing of stocks, as the stream of discounted expected future
7 cash flows from holding a security. According to Damodaran (1994), the general
8 stock valuation model is of the form presented in Eq. (2).
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t=∞

10 DPSt
Price of Security = (2)
11 (1 + r)t
t=1
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13 . . . where DPSt denote expected dividends per share and r is the required rate of
14 return on stocks.
15 It is clear from Eq. (2) that any macroeconomic factors which affect either
16 the expectations of future cash flows to the investor (dividends per share) and/or
17 the rate used to discount them will indirectly, though effectively, influence stock
18 returns.
19 Chen, Roll and Ross (1986) were among the first to specify and test a set of
20 economic factors which, based on economic theory and intuition, should affect
21 stock returns either through future cash flows or through the discount rate. They
22 utilised the following factors: inflation; the term structure of interest rates; risk
23 premia and industrial production and found them to be significant in explaining
24 stock returns. Although Chen, Roll and Ross (1986) can by no means claim that
25 they have found the full set of variables for asset pricing they have most certainly
26 made an important step in the right direction. Their model is of course the base for
27 the well known Arbitrage Pricing Theory (APT).
28 Their work has been continued in a series of papers by Burmeister and Wall
29 (1986) and Burmeister and McElroy (1987, 1988) who developed a multifactor
30 model and found that five macroeconomic factors, similar, though not identical,
31 to those employed by Chen, Roll and Ross (1986) are statistically significant in
32 explaining stock returns. The factors they utilised were: default risk; the term
33 structure of interest rates; inflation; sales as a proxy for the profits of the economy
34 and; the market.
35 In the spirit of the above work, other researchers have studied the explanatory
36 power of macroeconomic variables over stock returns in various stock exchanges
37 across the world. For example, among others, Poon and Taylor (1991) applied the
38 ideas discussed above to the U.K., Martinez and Rubio (1989) applied them to
39 the Spanish stock market, Hamao (1988) applied them to Japan and Wasserfallen
40 (1989) applied them to a number of European countries. Most of the above studies
1 find evidence in favour of the hypothesis that a set of macroeconomic factors has
2 explanatory power over stock returns.
3 Chen and Jordan (1993), in a more recent study featuring the U.S. market,
4 employed a set of factors similar to the one used by Chen, Roll and Ross (1986)
5 but grouped the companies in their sample according to their industry classification,
6 the significance of which is something which is discussed in great extent in Chap. 1
7 of the book of Kavussanos and Marcoulis (2001). Chen and Jordan (1993) also
8 find evidence in favour of macroeconomic factors being significant in the pricing
9 of stocks. More specifically, they document that, apart from the market returns,
10 changes in oil prices and inflation are possible sources of risk.
11 However, as in the case of microeconomic factors, the study of macroeconomic
12 factors and stock returns is not confined only to academics. Salomon Brothers
13 (better known today as Salomon Smith Barney) have developed a macroeconomic
14 model in the spirit of the macroeconomic models we have been discussing
15 above (Sorensen et al., 1989). This model uses seven variables to explain stock
16 returns. They are: economic growth, measured by changes in industrial production;
17 the business cycle, measured by the difference between corporate bonds and
18 U.S. Treasuries; long-term interest rates, measured by yield changes in the
19 10-year Treasuries; short-term interest rates, measured by yield changes in the
20 1-month Treasuries; inflation shock, measured by changes in the consumer price
21 index; the U.S. dollar, measured by changes in a 15 country currency basket Vs
22 the dollar and; a market proxy. Salomon have been using their multifactor model
23 for some time now and they claim that using monthly data, this model explains
24 about 40% of the fluctuations in the returns of a sample of 1,000 stocks. Definitely
25 then, models of this type are very promising.
26 In addition to the above, following their invention of the APT model, Roll
27 and Ross created the Roll and Ross Asset Management Corporation to translate
28 their theory to practice. They begin by stating the systematic sources of risk
29 that they believe are relevant to capital markets. These, according to the Roll
30 and Ross Asset Management Corporation are: the business cycle; interest rates;
31 investor confidence; short-term inflation and; long-term inflationary expectations
32 (Sharpe et al., 1995). Roll and Ross quantify these factors by designating certain
33 macroeconomic variables as proxies. For example, the business cycle factor is
34 represented by changes in the industrial production index. At the heart of the Roll
35 and Ross approach lies the assumption that each source of risk is subjected to
36 volatility and is entitled to some return. Moreover, Roll and Ross assume that
37 individual securities and portfolios of securities possess different sensitivities
38 to each source of risk. With these in mind, Roll and Ross attempt to construct
39 investment portfolios which offer the most attractive risk-reward profile for the
40 investor.
1 Another institution of international prominence which is dealing with

2 multifactor models from a more practical angle is BARRA International. Their
3 professionals utilise both fundamental and macroeconomic factors to explain
4 stock returns. For example, in 1993 BARRA International published a research
5 paper (Engerman, 1993) whose aim was to compare a multifactor model utilising
6 fundamental factors to another multifactor model utilising macroeconomic factors
7 in the U.S. For the record, the fundamental factors were, the market; the stock’s
8 price momentum; size; trading activity; growth; the earnings-to-price ratio and;
9 the book value-to-market value ratio. The macroeconomic factors were, interest
10 rates; bond spreads; industrial growth; inflation; oil prices; gold price and; dollar’s
11 value. Their results indicate that both the microeconomic, fundamental factors
12 and the macroeconomic factors have a role to play in the explanation of stock
13 returns. They, moreover, claim that microeconomic factors are more effective
14 than macroeconomic factors in accounting for the cross-sectional variation in
15 stock returns. In line with the above ideas, BARRA International is currently
16 providing multifactor models for several countries including the U.S., Japan, the
17 U.K., Canada, France, Switzerland and many more. Reference to the BARRA
18 models will be made again later in this paper, when the importance of industry
19 classification is discussed. Industry classification is indeed a prominent feature of
20 the majority of BARRA’s models.
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22
23 4. THE IMPORTANCE OF THE INDUSTRY EFFECT
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25 Apart from King (1966), who as mentioned above was the first to argue that changes
26 in stock prices can be explained by an industry effect as well as a market and a
27 company effect, others, such as Arditti (1967) and Nerlove (1968) find that industry
28 differences are highly significant in explaining cross-sectional differences in stock
29 price returns in the U.S. stock market. Similar results are also produced in the
30 industry focused analyses of Saunders and Yourougou (1990), Ferson and Harvey
31 (1991) and Isimbabi (1994), among others. Hence, an investor whose aim is to build
32 a diversified portfolio could well be interested in these cross-industry differences
33 since he could utilise them to build a portfolio diversified across industries of
34 different risk-return characteristics. The importance of the industry effect is also
35 emphasised in a number of other studies focusing on the U.S. stock market. For
36 example, Sorensen and Burke (1986) studied the relative price performance of
37 several industry groups and concluded that an investment strategy based on buying
38 and holding the best performing industry groups may enhance returns.
39 Kane and Unal (1988) and Neuberger (1991) focused on the risk return
40 characteristics of the U.S. banking sector. They find banks to be greatly underpriced
1 and exhibiting systematic risk that is lower than that of the “average” company.
2 They also find that this systematic risk is increasing over time and that stocks of
3 larger banks exhibit higher risk than small ones. Gyourko and Keim (1993) focused
4 on another “popular” U.S. industry, real estate, and found that the average monthly
5 returns of the industry are just under 1% with the associated standard deviation
6 being over 7%. They then compared these figures with the corresponding figures
7 of the S&P 500 index and found that the average monthly returns of the real estate
8 industry are higher, but as might be expected are accompanied by higher standard
9 deviation.
10 Furthermore, the industry effect has not only been studied by academics.
11 Prominent practitioners have also spent a lot of research time and resources to
12 formulate models which encompass this effect. For example, BARRA International
13 who was introduced above, very often estimates multifactor models for different
14 industry groupings. One of their most widely used multiple-factor models,
15 the BARRA E3 U.S. model (Kahn, 1994), utilises microeconomic factors and
16 estimates a model for each of 55 industry groups. Furthermore, their Canadian
17 (Roy, 1992) and Japanese models (Rosenberg, 1991), both released in 1992,
18 also utilise microeconomic and macroeconomic factors to estimate models across
19 several industrial groupings.
20 By considering some real world examples Kavussanos and Marcoulis (2001) in
21 Chap. 1 of their book argue that there is scope for undertaking industry analysis
22 and that it pays to direct investment resources on to some industries at the expense
23 of others at different points in time. From the evidence observed, the authors go
24 on to argue that it would have been beneficial for an investor to have performed
25 careful industry analysis at any point in time, from the post-war period to date.
26 Towards this end, Jones (1993) is cited, where a study spanning over the 48 year
27 period 1941–1989, indicates that from 1941 to 1973 the computer and business
28 equipment industry did extremely well (145 times what it was in 1941) and the
29 electronics industry also did well, rising to almost 69 times its 1941 level. On
30 the other hand, during the same 32 year period, the lead and zinc industry was
31 less than twice its original level, and the sugar and textile apparel industries were
32 only three times their original levels. Examples from the eighties cited in the same
33 study, also indicate tremendous differences among industries’ performances as
34 measured by the Standard and Poor’s Stock Price Industrial Indexes. For example,
35 during the period 1982–1989, the drugs industry almost quadrupled, the broadcast
36 media industry rose to almost six times its 1982 level while on the other hand the
37 chemicals industry declined by almost 30%.
38 However, the most dramatic example during the period mentioned is that
39 produced by the market crash of October 1987 when the Dow Jones Industrials
40 index lost 23.2%. Industries such as toys, machine tools, leisure time, gold, and
1 offshore drilling, among others, lost around 40% of their value while others such
2 as electric companies and telephone companies lost less than 10%. Jones (1998)
3 clearly demonstrates that the losses suffered by investors varied widely according
4 to the particular industries held.
5
6
7
8 5. THE ISSUE OF THE CLASSIFICATION
9 OF COMPANIES INTO INDUSTRIES
10
11 A practical question with industry analysis, concerns the classification of
12 companies into industrial sectors. The problem is not new. Kavussanos and
13 Marcoulis (2001) utilise the SIC (Standard Industrial Classification) codes, to
14 classify the U.S. companies used in their research. The sectors used were
15 transportation industries, such as water transportation, air transportation, rail
16 transportation and trucks and non transportation industries such as electricity,
17 petroleum refining, gas and real estate. The rationale for selecting the
18 aforementioned industries is that the air transportation, rail transportation and
19 trucks industries have been chosen due to the fact that they are transportation
20 industries. Hence, they might be argued to compete, in one way or another, with
21 the water transportation industry in the investor’s stock selection decision. The
22 petroleum refining, electricity and gas industries were chosen due to their stable
23 growth nature which is directly opposite to the very cyclical nature of the water
24 transportation industry. Finally, the real estate industry was included due to its
25 cyclical nature which, is a characteristic of the water transportation industry as
26 well. For exact SIC definitions for each of the industries see Kavussanos and
27 Marcoulis (2001), Appendix A of Chap. 1.
28 The SIC system which is based on Census data classifies companies into
29 industries according to their final product or service. SIC codes have 11 letter
30 divisions, A to K and each division consists of several major industry groups,
31 designated by a two digit numerical code. The major industry groups, within
32 each division, are further subdivided into three, four, and five-digit SIC codes
33 to provide even more detailed classifications. The larger the number of digits in
34 the SIC system, the more specific the breakdown. For instance, Division E defines
35 transportation. This consists of 10 major groups as per 2-digit number; 40, 41, . . . ,
36 49. Major group 44 corresponds to water transportation which consists of six
37 further 3 digit groupings. Grouping 441 refers to deep-sea foreign transportation
38 of freight, which only has one four-digit category under it. Other SIC codes for the
39 other industry groups examined in the above book include 40 (Railroad Transport)
40 and 45 (Air Transportation).
1 SIC codes have significantly contributed towards bringing order to the industry
2 classification problem by providing a consistent basis for describing industries and
3 companies. Analysts using SIC codes can focus on economic activity in as broad,
4 or as specific, a manner as desired. For example, industry groupings in a number of
5 studies dealing with industry stock return comparisons in the U.S. (e.g. Boudoukh
6 et al., 1994; Eun & Resnick, 1992; Ferson & Harvey, 1991; Isimbabi, 1994), among
7 others, have been formulated according to their SIC codes. Typically, the above
8 studies have used 2–4 digit industry groupings.
9 Despite the fact that the SIC system of industry classification is the easiest to
10 use and the most consistent system available, it is not the only one in actual use.
11 Standard and Poor’s Corporation, as from the end of 1982, provide weekly stock
12 indices on approximately 100 industry groupings, many of which go back 30 or
13 even 40 years. The Value Line Investment Survey covers roughly 1,700 companies,
14 divided into approximately 90 industries. Another useful industry classification
15 system is that of The Media General Financial Weekly which divides stocks into
16 60 industries.
17 Given its many advantages and its wide use among academics and practitioners
18 the SIC classification system was used by Kavussanos and Marcoulis (2001).
19 Nonetheless, like any classification system, it faces certain limitations, the most
20 important of which is the classification of multiproduct, diversified companies
21 under more than one heading. When performing cross industry comparison, in
22 order to avoid distorting the results during comparisons between the selected
23 industries, companies that were found to be listed under more than one industry
24 groups were omitted. This resulted in industry groupings which were relatively
25 homogeneous.
26 Morgan Stanley Capital International (MSCI) also have an industrial classi-
27 fication system. They publish data on monthly price indices (with 1970: 1 = 100)
28 for 38 International Industries. The MSCI price indices are value-weighted and aim
29 for 60% coverage of the total market capitalisation for each market. Companies
30 in the indices replicate the industry composition of each local market. The chosen
31 list of stocks, formed from the share prices4 of approximately 1600 securities
32 in 22 countries, includes a representative sample of large, medium, and small
33 capitalisation companies from each local market, taking into account the stocks’
34 liquidity. Furthermore, stocks with restricted float or cross-ownership are avoided.
35 Kavussanos et al. (2002) use this data set to perform industry analysis at the
36 international level using global portfolios.
37 In yet another study, Kavussanos et al. (2003) focus on the international
38 maritime sector and its subsectors. The answer to the question of classification of
39 shipping companies into its subsectors is not readily available. Yet, such industry
40 classification can enhance further the understanding of the risk return trade offs
1 Table 1. Maritime Industry Sectors.

2
Sector Description
3
4 Bulk Dry bulk, older type General cargo ships, excluding OBO
5 Container LOLO and some ROLOs with large container section
6 Cruise Cruise ships
Drilling Rig owners and operators
7 Ferry Passenger ferries including ROPAX
8 Offshore Supply boats and anchor handlers
9 Shipping Companies with 90% or more of revenue derived from shipping or shipping
10 related activities but which could not be classified into any other sector
11 Tanker Oil Tanker, excluding chemical and gas Tankers as well as FSPO. OBOs were
included when operated as oil Tankers
12 Yard Shipyards excluding Rig yards
13 Diversified Companies with between 60% and 90% of revenue derived from shipping or
14 shipping related activities – the balance being derived from elsewhere
15 All All of the above sectors
16 Note: OBO – Oil Bulk Ore; LOLO – Lift On Lift Off; ROLO – Roll On Lift Off; ROPAX – Roll On
17 Passenger.
18
19 within the shipping industry. Kavussanos et al. (2003) identify every possible
20 maritime company listed continuously in any stock exchange in the world over the
21 3-year period July 1996 and July 1999, and classify it under pre-defined sub-sectors
22 of the industry (Table 1).
23 This, sampling of companies across stock exchanges (rather than focusing
24 on companies listed in one exchange), gives the largest possible cross-sectional
25 sample of maritime companies in each sub-sector, and at the same time a sufficient
26 length of time series data for returns (36 monthly observations) to enable estimation
27 and inferences.
28 The starting point was the Maritime Transport and Energy list of traded shares
29 appearing in the Financial World page of the Lloyds List, which in turn is based
30 on the Bloomberg classification list. This was supplemented by any other public
31 companies known to be involved in shipping or shipping related industries but not
32 listed there. In order to classify companies into sectors, a short questionnaire was
33 sent to 250 of these companies in July 1999 asking them to classify the percentage
34 of their core business activity in a number of predefined sectors. This information
35 was supplemented by consulting their annual reports for 1998 and 1995. There
36 was an approximately 20% response to the initial questionnaire, with a further
37 30% replying after a reminder letter, which was sent four weeks later. Financial
38 information for companies which did not reply was obtained from the Wright
39 Investors’ Service web page (http://www.wisi.com), from the Fairplay Online
40 Directory (http://www.wsdonline.com) and from individual company web pages.
1 In order to make inferences for each sector which reflect the risk/return profile of
2 operating in the specific sector, companies whose economic activity in shipping or
3 shipping related activities was less than 60% were considered overly diversified and
4 were discarded from the sample.5 Companies for which there was no information
5 on revenue, companies involved in mergers, acquisitions and/or changes in their
6 core business during the sample timeframe, and companies for which stock data
7 could not be found on DataStream were excluded from the analysis.
8 To account for the possibility that different degrees of diversification have
9 varying effects on the risk-return profiles of sectors, the companies that remained
10 were classified and analysed according to whether 60, 75 and 90% of their core
11 business activity was in the same sector. Specialised companies operating only in
12 one sector were straightforward to classify. Companies whose core activity was
13 over 90% in more than one sector of shipping but for which no detailed breakdown
14 of the percentages attributable to each sector were available were classified in a
15 general category called “shipping.” Companies with diverse core business that
16 included over 10% of activities not shipping or shipping related were classified
17 as “diversified.” The sectors “Reefer,” “Gas,” “Chemical Tankers,” “Brokers” and
18 “Ports” had to be abandoned due to too few listed companies belonging to them.
19 In total 108 companies made up the final sample used for analysis.
20 For analysis, the return on stocks must be defined, as well as other data on
21 relevant micro macro economic variables and the market. In the above studies
22 monthly stock price and dividend yield (in percentage form) data for each share
23 were collected from DataStream International Service. Logarithmic monthly
24 returns for company i at time t, Rit , are calculated in percentage form using the
25 equation:
26
(P it + (P it × DYit /1200))
27 R it = 100 × ln
28 P it−1
29 Where Pit and Pit −1 are the stock prices of company i at time t and t−1,
30 respectively, and DYit is the annualised dividend yield paid by company i at
31 time t.
32 In calculating the CAPM regression and multifactor regressions, a question
33 of what is the relevant market is always raised. Because the sample includes
34 companies listed on stock exchanges in different countries the Morgan Stanley
35 Capital International (MSCI) All Country World Index was used for analysis
36 in the studies by Kavussanos et al. (2002, 2003). Also, given the practice of
37 evaluating industry specific funds by benchmarking on sectoral indices, the MSCI
38 International Shipping Index was also used for analysis.
39 The MSCI All Country World Index is calculated as a market capitalisation
40 weighted average of equity returns in 51 countries (23 developed and 28 emerging),
1 and is quoted in gross form inclusive of dividends. The MSCI Shipping Index is one
2 of the 38 industry indices produced by Morgan Stanley. Companies are classified
3 based on their principal economic activity as determined by the breakdown of
4 earnings. If no detailed earnings data are available then breakdown of sales
5 data are used. In defining industries MSCI attempts to construct homogeneous
6 groups which are expected to react similarly to economic and political trends
7 and events.
8 A further practical question relates to how the risk free interest rate is defined.
9 The U.S. three-month Treasury bill rate is generally considered as a measure of
10 the global risk free rate of interest, RFt . It is instructive to view summary statistics
11 for average equity returns by maritime sector and for the returns on the MSCI
12 world and shipping indices for the period July 1996 to July 1999, as estimated in
13 Kavussanos et al. (2003). These are presented in Table 2.
14 Yet another question is how to construct empirically the macro and micro
15 economic variables used as explanatory variables in a multifactor model, such
16
17 Table 2. Summary Statistics of Mean Monthly Returns of Each Sector by
18 Classification Criteria; July 1996–July 1999.
19
Sector Classification Criteria
20
21 90% 75% 60%
22
Mean SD No Mean SD No Mean SD No
23
24 Bulk −2.18 1.22 6 −1.79 1.54 7 −1.88 1.45 8
25 Container −0.85 2.90 7 −0.92 2.45 9 −0.92 2.45 9
26 Cruise 3.04 1.32 3 3.04 1.32 3 2.93 1.10 4
Drilling 0.32 1.12 7 0.32 1.12 8 0.33 1.05 9
27 Ferry −0.05 2.73 11 −0.47 2.60 15 −0.14 2.61 17
28 Offshore 0.17 1.67 7 0.17 1.54 8 0.25 1.38 10
29 Shipping −1.68 3.79 34 −1.77 3.90 30 −2.01 3.76 30
30 Tanker −2.53 2.50 12 −2.53 2.50 12 −2.46 2.41 13
31 Yard 0.60 0.46 4 0.23 1.10 6 0.23 1.00 7
Diversified −0.50 1.57 17 −0.12 1.72 10 N/A N/A N/A
32 All −0.92 2.85 108 −0.91 2.86 108 −0.91 2.86 107
33
Mean SD Skew Kurt
34
MSCI-All 1.42 4.50 −1.61 4.19
35 MSCI-Sh 0.28 6.34 4.19 3.65
36
37 Notes: (1) SD = Standard Deviation, No = Number of companies classified under each sub-sector,
Skew = Coefficient of Skewness, Kurt = Coefficient of Kurtosis, MSCI-All and MSC-Sh are
38 the Morgan Stanley All Country World Index, and the Shipping Index, respectively, (2) Under
39 the 60% criterion, the Diversified sector only contained one company (Wilh Wilhelmsen) and
40 this sector was therefore dropped.
1 as that estimated in Kavussanos et al. (2002) and Kavussanos and Marcoulis

2 (2000b). It is suggested that only the unanticipated part of the macro economic
3 series is relevant, as the anticipated part will be incorporated instantly into prices
4 in efficient markets. ARIMA models are used to filter out the anticipated part
5 of the macro variables, with the unanticipated part being used for estimation in
6 multifactor models. For details see these last two papers.
7
8
9 6. MAJOR FINDINGS OF THE RESEARCH
10
11 It should be mentioned at this point that the reason Kavussanos and Marcoulis
12 (1997a, b, c, 1998, 2000a, b, 2001) focused on the U.S. water transportation
13 industry is that the U.S. had the largest number of companies in this sector,
14 relatively sufficient for meaningful analysis, compared to any other single country.
15 Even for the U.S. the listing of water transportation companies did not have such a
16 long history, with most companies entering the stock exchange to raise funds in the
17 1980s and 1990s. It is worth noting that currently, the vast majority of U.S. based
18 water transportation companies still remain privately owned. The primary reason,
19 given by both investor groups and investment bankers for this, is the industry’s
20 perceived high level of risk.
21 This risk stems from the fact that on the one hand the water transportation
22 industry is a predominantly capital intensive industry which requires huge
23 investment outlays, while on the other hand it is subject to cyclicality which more
24 often than not is beyond the industry’s control. This cyclicality is a result of the
25 industry serving the world economy through the transportation of world trade. It is
26 a fact of life that the world economy goes through cycles and along with it world
27 trade goes through cycles as well. Consequently, the water transportation industry
28 is also subject to cycles whose amplitudes are a function of those of the world
29 economy and the demand and supply situation in the water transportation market.
30 Given the above risk profile of the water transportation industry, the prime
31 motive of the studies have been to examine, and compare, this industry’s stock
32 exchange risk perception over time and across industries of similar and different
33 risk profiles.
34 In Kavussanos et al. (2002, 2003) the analysis was carried in a global setting.
35 This goes along with the notion of investors operating in a transnational goods and
36 capital markets and forming global portfolios of industries across countries. It is
37 a practice widely followed by big investment houses. At the same time, such an
38 analysis enables the increase in the sample of companies listed in each industry
39 to a respectable level. As a consequence results are more reliable. Furthermore it
40 allows the distinction of subsectors within the shipping industry, as in Kavussanos
1 et al. (2003) – see Tables 1 and 2 and discussion in the previous section, something
2 which would be impossible if restricted to a single country setting. Of course, as
3 more companies decide to become listed in stock exchanges, results can be even
4 more reliable in future analysis.
5 To start with the findings of Kavussanos and Marcoulis (2001), Appendix A of
6 this paper presents them, in tabular form, so that the reader can obtain a full picture
7 of the major findings of the research. Moreover, Appendix B of the paper presents a
8 summary of the empirical evidence regarding the micro and macroeconomic factors
9 employed in the book. Other studies similar to Kavussanos and Marcoulis are
10 tabulated, which have also attempted to identify the determinants of stock returns
11 by using sets of either microeconomic or macroeconomic factors. Appendix B.1
12 presents empirical evidence in the finance literature regarding the macroeconomic
13 factors employed in the book and compares it with the results of the book, while
14 Appendix B.2 repeats the exercise for the microeconomic factors employed in the
15 book.6
16 As can be seen in Appendices B.1 and B.2, there are similarities as well
17 as differences among the results of the book and the general literature. Most
18 differences show up with respect to the macroeconomic factors which, incidentally,
19 tend to also exhibit differences across other empirical studies. However, when
20 comparing the results, one should keep in mind that the majority of published
21 work utilises a wide sample of companies, which have used portfolios as a basis
22 for asset pricing rather than industry classification as in our study.
23
24
25 6.1. Results from the CAPM
26
27 Kavussanos and Marcoulis (1997a, 1998) and Chap. 4 in Kavussanos and
28 Marcoulis (2001) deal with the Risk and Return of U.S. Water Transportation
29 Stocks over time and over Bull and Bear market conditions and its results
30 do indicate a number of interesting aspects regarding the behaviour of water
31 transportation company stocks during the period 1985–1994. Firstly, the average
32 beta of shipping companies was estimated to be numerically lower but statistically
33 not different from the beta of the “average” company (unity). This result of
34 the systematic, non-diversifiable, risk of the water transportation industry being
35 not different from the average market risk could make the shipping industry
36 an attractive candidate for potential investors. Furthermore, another attractive
37 characteristic of the beta coefficient of the water transportation industry, from
38 the investor’s point of view, is the fact that it appears to be stable over time.
39 Secondly, water transportation companies appear, with some notable exceptions,
40 not to be underpriced over the full ten year period examined. Sub-period
1 estimations of the CAPM coefficients suggest that underpricing did not occur
2 during the first five year period as well as during the second five year
3 period.
4 Thirdly, there appears to be a “size” effect in the shipping industry for the period
5 1984–1989 in the sense that smaller shipping companies tend to exhibit higher
6 returns. These higher returns, as might be expected, were found to be accompanied
7 both by higher total and systematic risk. However, this “size” effect disappears in
8 the period 1990–1994 possibly due to the shifting of several “small” caps to the
9 medium and large groupings.
10 The chapter also examines whether underpricing, as measured by alpha, or
11 the systematic risk, as measured by beta, of the water transportation companies
12 included in the sample examined changed over bull and bear market conditions
13 during the ten year period examined. It is found that alpha, not beta, tends to be
14 mostly affected by upward or downward market movements. Therefore, investors
15 considering including shipping stocks in their portfolios need not worry about
16 possible changes in the systematic risk of these stocks during changing market
17 conditions.
18 Another aim of the chapter is to examine the risk-return relationship of the water
19 transportation industry along another dimension, that of comparing the systematic
20 risk of companies belonging to this industry to the systematic risk of companies
21 belonging to other related and non-related industries. In this context, the beta of
22 the water transportation industry is compared to the beta of the following seven
23 industries: rail transportation; air transportation; trucks; electricity; petroleum
24 refining; gas and; real estate. To achieve that, the Capital Asset Pricing Model
25 is employed.
26 Results reveal some further interesting characteristics of the stock returns of the
27 water transportation industry in the U.S. during the period 1984–1995. The beta
28 of the water transportation industry is significantly lower than the beta of the rail
29 transportation industry and the beta of the real estate industry. It is statistically
30 similar to the betas of the five other industries employed in the chapter.
31 Looking at the findings of the chapter, one might conclude that stocks belonging
32 in the water transportation industry do not appear to possess any risk characteristic
33 the investment community is not aware of. The industry average beta of 0.92 seems
34 to be in line with the average company’s beta, unity, and the average explanatory
35 power of the regressions of around 23% is also typical in these kind of estimations.
36 Furthermore, tests suggesting that the industry beta does not appear to change over
37 time, despite the cyclical nature of the underlying industry, can only be “good”
38 news for the industry’s stock market perception. Moreover, numerically speaking,
39 the beta of the water transportation industry is the lowest of all transportation
40 industries’ betas.
1 6.2. Microeconomic (Company specific) Factors as Determinants

2 of Equity Returns
3
4 Kavussanos and Marcoulis (1997b) and Chap. 5 in Kavussanos and Marcoulis
5 (2001) undertake a comparative analysis of the stock market perception of the risk-
6 return relationship of U.S listed water transportation stocks in relation to stocks
7 belonging to the other transportation and non-transportation sectors mentioned
8 above over the same time period. The significant difference between this analysis
9 and the one in Kavussanos and Marcoulis (1997a) is that this one is carried out in
10 a multidimensional risk environment. More specifically, apart from relating cross-
11 sectional differences in the returns of companies belonging to different sectors to
12 the market, the model used in this chapter relates those differences to a number of
13 fundamental, company specific, factors, which according to intuition and academic
14 research are believed to influence stock returns. These factors are: the market value
15 of equity (size), the book-to-market value of equity ratio; the earnings-to-price
16 ratio; the asset-to-market value of equity ratio; and the asset-to-book value of
17 equity.
18 The methodology used by the authors to estimate the above relationship for
19 each industry is the Seemingly Unrelated Regression Model (SUR) due to it
20 possessing two significant advantages over the classic Ordinary Least Squares
21 Model (OLS). The first is that the sensitivities of each company’s returns to the
22 market (betas) are estimated simultaneously across companies together with the
23 impact of the fundamental variables and the alphas also allowing the imposition
24 of cross-equation restrictions on the parameters. The second is that the SUR, in
25 contrast to more classic methodologies utilised in the past in similar studies, adjusts
26 for the cross-sectional correlation in the residual returns across companies thus
27 leading to parameter estimates which are more efficient than those given by OLS
28 models, the gain being proportional to the correlation between disturbances from
29 the different equations. This advantage is particularly important in studies of this
30 nature since companies grouped according to their industry classification are likely
31 to exhibit residual returns’ correlation.
32 The results of the study indicate that there appear to be factors, from the
33 microeconomic, company specific environment, which, in addition to the market
34 which remains the driving force behind returns, tend to influence the returns of
35 the water transportation industry and the other industries. It should be noted,
36 nonetheless, that the significance of the fundamental variables appears to vary
37 across sectors and over time. The book-to-market value, the asset-to-market and the
38 asset-to-book value of equity ratios, and the market value of equity are significant in
39 some industries but not in others while the earnings-to-price ratio has no role to play
40 in any industry’s returns. Generally speaking, the coefficients of the fundamental
1 variables come out with the expected sign, save the positive “size effect” in the
2 petroleum industry.
3 The returns of the water transportation industry appear to be influenced by only
4 one factor, the asset-to-book value of equity ratio. The relationship is a negative
5 one and suggests that as shipping companies become more highly geared, in terms
6 of book leverage, their stock market performance deteriorates.
7 As far as systematic risk (beta) is concerned and in line with the findings
8 of Chap. 4, the water transportation industry, along with three other non-
9 transportation industries, exhibits lower than average systematic risk for the whole
10 period studied as well as for the two subperiods. Furthermore, the beta of the water
11 transportation industry, along with that of six other industries, does not vary from
12 subperiod one to subperiod two while only the real estate industry exhibits a lower
13 beta than the water transportation industry.
14 Finally, as in Chap. 4 in Kavussanos and Marcoulis (2001) the alpha of the water
15 transportation industry along with the alphas of all other industries analysed are
16 positive thus suggesting that these industries have been underpriced over the time
17 horizon studied.
18
19
20 6.3. Macroeconomic (Economy Wide) Factors as Determinants of
21 Equity Returns
22
23 Kavussanos and Marcoulis (2000a) and Chap. 6 of Kavussanos and Marcoulis
24 (2001) is utilizing the traditional one-factor market model, augmented to include a
25 number of other economic factors believed to influence security returns. However,
26 in this chapter, the factors used are macroeconomic, as opposed to microeconomic.
27 Hence, cross-sectional differences in the returns of the companies in each industry
28 are related to the stock market and the following set of macroeconomic factors:
29 industrial production, the term structure of interest rates, oil prices, consumption,
30 and inflation. The selection of this set of macroeconomic factors was driven both
31 by intuition, since the aforementioned factors affect both the future cash flows and
32 riskiness of a company, as well as due to their popularity among academics (they
33 have been widely used in previous studies).
34 Assuming efficient markets, only the innovations or unanticipated changes
35 in the above macroeconomic variables should influence stock returns. Hence
36 ARIMA models were used to filter out the anticipated component of series
37 with “memory.” Following that, Multiple Least Squares (MLSQ) regression
38 methods were used to estimate the relationship of the unanticipated changes
39 in the above factors to the stock returns of each industry over the period
40 1985–1995.
1 The results of this chapter, like the one preceding it, show that there are factors
2 other than the market which influence the returns of the water transportation
3 industry and other industries, thus justifying the use of multifactor models instead
4 of the traditional one-factor, market model. More specifically, in line with the
5 findings of Chaps 4 and 5, the beta of the water transportation industry is found to
6 be lower than the “average” beta of unity and it is also found to be among the lowest
7 in the industries analysed. Moreover, the alpha of the water transportation industry,
8 along with the alphas of the other industries analysed are significantly higher than
9 zero thus implying that these industries have, on average, been underpriced over
10 the period 1985–1995.
11 Regarding the macroeconomic factors, the authors find that their effect varies
12 across industries. This is probably the most interesting and important finding of
13 the study, that different industries tend to react differently to different economic
14 shocks. The investment manager could utilise this finding, and by examining the
15 sensitivities of industry stock returns to the macroeconomy, make better investment
16 decisions.
17 As far as the returns of the water transportation industry are concerned,
18 they appear to be influenced by two macroeconomic factors, monthly industrial
19 production and oil prices. The former exerts a negative effect which suggests that
20 increases in monthly industrial production are accompanied by dropping returns
21 in the industry while the latter indicates a positive relationship which suggests
22 that the returns of the water transportation industry are an increasing function of
23 increases in oil prices.
24
25
26 6.4. Microeconomic and Macroeconomic Factors – A Unified Approach
27
28 Kavussanos and Marcoulis (2000b) and the seventh chapter in Kavussanos and
29 Marcoulis (2001) relates cross-sectional differences in the returns of the companies
30 in each of the industries mentioned in the previous chapters to the set of the
31 microeconomic factors utilised in Kavussanos and Marcoulis (1997b) and the
32 set of the macroeconomic factors utilised in Kavussanos and Marcoulis (2000a)
33 simultaneously over the period 1985–1995. The chapter recognises that both micro
34 and macro economic factors may be determinants of stock returns across industries
35 and attempts to uncover the determinants of each industry’s stock returns in a more
36 general setting where both sets of factors are included. This practice is supported
37 not only by academics (Chen et al., 1986; Fama & French, 1992 among others)
38 but also by practitioners (BARRA, amongst others).
39 Results from a Seemingly Unrelated Regression Model (SUR) regarding market
40 betas indicate that the market, as expected, has a significant role to play in
1 explaining the returns of all industries. The beta of the water transportation industry
2 is, as in the previous chapters, the lowest among the transportation industries and
3 the third lowest, ranking behind electricity and gas, of all the industries analysed.
4 Further inferences regarding market betas suggest that the market beta of the water
5 transportation industry, along with the market betas of the electricity, gas and real
6 estate industries, are significantly lower than the “average” market beta which is
7 of course one.
8 Moreover, the alpha of the water transportation industry, along with the
9 alphas of the other industries analysed are significantly higher than zero thus
10 implying that these industries have, on average, been underpriced over the period
11 1985–1995.
12 As far as the economic factors are concerned, the returns of the water
13 transportation industry were found to be positively related to oil prices and market
14 value of equity and negatively related to monthly industrial production and the total
15 assets-to-book value of equity ratio. The sensitivities of each industry’s returns to
16 the set of microeconomic and macroeconomic factors, as expected, varies across
17 industries. All factors, except the price to earnings ratio, appear to be priced in
18 one industry or another. The estimation of this general model incorporating both
19 microeconomic and macroeconomic factors for each industry sheds some light
20 regarding differences both in the structure and sensitivities of each industry’s stock
21 returns to the set of factors employed.
22 A useful point that comes out of this analysis is that the stock returns of the
23 water transportation industry, for example, are positively affected by oil prices
24 and the market value of equity and negatively affected by monthly industrial
25 production and the asset-to-book value of equity. The aforementioned factors
26 comprise a different set when compared to any other industry under analysis
27 and hence the investment manager, by picking, or not picking, this industry, may
28 expose, or not expose, his portfolio to the specific set of economic factors. The
29 same holds of course for any other industry. Furthermore, the industry analyst
30 can also compare the direction and magnitude of the sensitivities of the different
31 factors employed in the analysis to the returns of each industry. For example, an
32 unanticipated change in oil prices affects the gas industry much more than the water
33 transportation industry or the negative effect of market leverage is more profound
34 in the electricity industry than in the water transportation industry. Finally, it should
35 be noted that the sign of the microeconomic and macroeconomic factors utilised
36 is not always in line with the majority of the existing literature, thus pointing
37 out that empirical results regarding the direction of the determinants of industry
38 stock returns may differ, in some cases, to the direction of the determinants of
39 the full universe of stocks. This is another important finding of this chapter and
40 certainly an area which could provide interesting research possibilities for the
industry analyst.
1 6.5. Macroeconomic Factors and International Industry Returns

2
3 Given the increasing degree of integration in the capital markets internationally, an
4 interesting question is the identification of factors affecting the risk return profile
5 across industries at the global level. This is done in Kavussanos et al. (2002) and
6 in Chap. 8 of the Kavussanos and Marcoulis (2001) book.
7 The objective of the paper was to present evidence, for the first time, of the ability
8 and the usefulness of world macroeoconomic news in explaining the variability of
9 global industry returns. The monthly risk variables employed in the study are: the
10 excess return on a world equity market portfolio, fluctuations in global exchange
11 rates, global measures of inflation, industrial production growth and credit risk.
12 OLS regressions were used to estimate the relationship between unanticipated
13 changes in the above factors and the excess returns of a set of 38 international
14 industries as compiled by Morgan Stanley Capital International (MSCI). Among
15 the factors considered, the return of the world market portfolio affects significantly
16 all the 38 international industries under analysis. Moreover, it is by far the most
17 important factor in explaining the variation in international industry returns.
18 Inclusion of macroeconomic factors marginally increases the explanatory power
19 of the model. Several significant relationships are detected with respect to the
20 remaining factors that do not, generally, exhibit a consistent pattern in the
21 way in which they affect returns of global industries. The long run impact a
22 factor may have, can be positive on the returns of a particular industry, and
23 negative or insignificant on the returns of another, depending on industry specific
24 characteristics. This finding is also consistent with evidence presented in chapters
25 6 and 7 of the Kavussanos and Marcoulis (2001) book.
26 The practical implications of this study are important for portfolio managers. The
27 industry integration or segmentation in the world economy, makes any evidence on
28 the sources of risk that may affect stock returns across industries at the international
29 level essential in adopting an optimal strategy for global investing.
30 The industrial classification of a given asset becomes crucial, as certain
31 global industries develop to be homogeneous, and capital markets are
32 becoming increasingly integrated. The significant relationships between global
33 macroeconomic factors and international industry stock returns detected in this
34 paper, are useful to the investor who can exploit these relationships in order to
35 increase his diversification capacity or speculate by timing his investment.
36
37 6.6. International Industry Returns for Subsectors of the
38 Shipping Industry
39
40 The paper by Kavussanos et al. (2003) gives yet another dimension to the analysis,
as explained before. It compares the behaviour of shipping and shipping related
1 company stock returns to reveal whether systematic risk differs from the average
2 in the market and across sub-sectors of the maritime industry.
3 Following an extensive collection of information through postal questionnaire
4 survey, 108 publicly listed shipping and shipping related companies, across stock
5 exchanges of the world, are classified by sector according to their core business
6 activity – see earlier discussion for this. The Capital Asset Pricing Model (CAPM)
7 is employed for the period 1996 to 1999 to model stock returns and measure sector
8 ␤s (systematic risk).
9 During the 1996–1999 period analysed, when the shipping industry was not
10 doing particularly well, companies in sectors were broadly overpriced, and average
11 returns seemed to be negative. Market ␤’s for all the stocks in the industry appeared
12 to be significantly lower than the market beta. The Drilling and the Offshore
13 sectors were significantly higher than one, however all other average sector ␤’s
14 appeared to be either equal or lower than the market average. The sectors that
15 appeared to have ␤’s which were significantly lower than the market are the
16 Shipping, Tanker, Ferry, and also Bulk and Containers mostly. It seems then that the
17 maritime industry stocks do not carry above average market risk, at the international
18 setting.
19 In comparing the ␤’s amongst sectors it seems that the Drilling and Offshore
20 sectors have the same proportion of systemic risk in them. The ␤ values of
21 these sectors do not differ significantly from each other but are significantly
22 different from all the other sector ␤ values except for Cruise. However, the Cruise
23 sector ␤, whilst not significantly different from Drilling and Offshore, is not
24 significantly different from any other sector. There is no significant difference in
25 the ␤ values of the remaining sectors: Bulk; Container; Ferry; Shipping; Tanker;
26 Yard; Diversified and All. When regressed against the MSCI Shipping Index, the
27 Drilling and Offshore sectors again appear to have the same degree of market risk
28 in them. There is no significant difference in the ␤ values of all other remaining
29 sectors.
30 Finally, as more companies in the industry become public the scope for increased
31 sample sizes for each sub-sector of the maritime industry on which to base
32 inferences will also increase. Perhaps a further study when more data is available
33 and also when market conditions are different (on the upturn) may add to the body
34 of knowledge established in this paper.
35
36
37 7. USEFULNESS OF THE FINDINGS
38
39 Having presented the review on the state of research regarding listed companies in
40 the shipping and other related sectors and subsectors of shipping, some comments
1 are in order regarding the usefulness of these results. The focus is on two major
2 categories of investors including portfolio managers and corporate financiers.
3 As far as the former category is concerned, traditionally, investors and portfolio
4 managers’ strategies, regarding stock selection, are perceived as the choice of the
5 proper mix of stocks in order to maximise returns subject to their risk profile. In
6 order to achieve that however, they would need to identify what “features” really
7 matter in a stock’s or an industrial sector’s performance. The research on shipping
8 and transportation sectors answers this question by expressing the returns of the
9 industries analysed as a linear combination of each industry’s returns’ sensitivity
10 to a number of microeconomic and macroeconomic factors times the risk premium
11 on this factor.
12 As might be recalled, every industrial sector analysed has its own pattern of
13 sensitivities to the different microeconomic and macroeconomic factors employed.
14 This might be used by the architect of the portfolio’s investment strategy to
15 determine the most desirable exposure to each risk factor. Altering the mix of
16 industries included in the portfolio will certainly affect the amount, and type, of
17 risk exposure to each factor studied. For example, suppose the portfolio manager
18 wishes to move away from any unanticipated change in the term structure risk (an
19 unanticipated widening or narrowing of the long vs short -term interest rates) since
20 he believes that there will be some turbulence in the future regarding this factor.
21 Utilising the multifactor model, for example he could exclude the air transportation,
22 trucks, electricity and petroleum refining industries from his portfolio.
23 Alternatively, the portfolio manager could employ the above model or any other
24 model presented, to analyse the sensitivities of the factors employed to the returns
25 of each industry. Using each industry relevant equation, the investment manager
26 can substitute his expectations of each microeconomic and macroeconomic factor
27 employed in order to arrive at the expected returns of each industry. Then,
28 according to the confidence that he may be able to place in his expectations, he
29 can decide upon the proportion of stocks that belong to each industry that he will
30 include in his portfolio. Furthermore, by comparing industry specific equations,
31 the portfolio manager can diversify, more effectively, his risk with respect to the
32 factors employed.
33 As far as the second category is concerned, investment bankers, the usefulness
34 of the results centres around the concept of the cost of capital or discount rate,
35 which is a critical factor used by corporate financiers in several projects which
36 have discounted cash-flow valuation as their backbone (such as capital budgeting
37 and the valuation of privately and publicly owned companies). Despite the fact
38 that there is no consensus among practitioners regarding the right model to use for
39 estimating the cost of capital, traditionally, most applications have been employing
40 the capital asset pricing model (CAPM) mainly due to its simplicity.
1 NOTES
2
3 1. The charter market occupies a central place in the structure of the shipping industry.
4 Both shippers and shipping companies may prefer to hire a vessel rather than buy it outright.
5 This may be due to the high capital cost of the vessel or the need to either cover cyclical
peaks in demand for shipping capacity or replace ships out of service.
6 2. When borrowing from banks owners offer equity as part financing in a mortgage.
7 3. In charter backed finance shipowners borrow against the security of a long time charter
8 agreement they have with a charterer.
9 4. Share prices included in the indices were adjusted for any rights issues, stock dividends
10 and/or splits.
5. Accordingly, some companies known to have major shipping or shipping related
11 interests were excluded because they were too diversified elsewhere.
12 6. For details of estimation methods and full set of results see Kavussanos and Marcoulis
13 (1997a, b, c, 1998, 2000a, b, 2001), and particularly Kavussanos and Marcoulis (2001).
14
15
16
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23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
1 APPENDIX A
2
3 Summary of Major Findings in Kavussanos and Marcoulis (2001)
4
5
6 Chapter 4: Risk and return of U.S. water transportation stocks over time and
7 over bull and bear market conditions.
8 Period Covered: January 1985 – December 1994
9 Methodology: CAPM
10 Major Findings:
11 Industry Average Beta: 0.9199 (= 1)
12 Industry Average Alpha: 0.00218 (> 0)
13 Parameters exhibit stability over time
14 No constant “size effect” over time
15 Shift of alpha, but not beta, over bull and bear market conditions
16
17 Note: Figures in parenthesis indicate statistical equality or non equality to the
18 number in the parenthesis
19
20 Beta comparisons across industries – a water transportation industry
21 perspective.
22 Period Covered: July 1984 – June 1995
23 Methodology: CAPM
24 Major Findings:
25 Industry CAPM Parameters
26
27
28 Industry Alpha Beta
29
30 Water transportation 0.0352 (> 0) 0.9411 (< 1)
31 Air transportation 0.0124 (> 0) 0.9748 (= 1)
32 Rail transportation 0.0150 (> 0) 1.0155 (= 1)
33 Trucks 0.0206 (> 0) 0.9676 (= 1)
34 Electricity 0.0668 (> 0) 0.9465 (< 1)
35 Gas 0.0447 (> 0) 0.9581 (< 1)
36 Petroleum refining 0.0039 (> 0) 0.9838 (= 1)
37 Real estate 0.0260 (> 0) 0.6933 (< 1)
38
39 Note: Figures in parenthesis indicate statistical equality or non equality to the number in the
40 parenthesis.
1 The beta of the water transportation industry is significantly lower than the beta
2 of the rail transportation industry and significantly higher than the beta of the
3 real estate industry.
4
5
6 Chapter 5: The stock market perception of industry risk and microeconomic
7 factors: The case of the U.S. water transportation industry vs. other transport
8 industries.
9
Period Covered: July 1984 – June 1995
10
Methodology: Multifactor Model employing fundamental microeconomic factors
11
Major Findings:
12
13
14 Industry Multifactor Model Parameters
15
16 Industry Alpha Beta ME B/M A/ME A/BE E/P *
17
18 Water transportation 0.0420 (> 0) 0.9410 (< 1) −
19 Air transportation 0.0030 (> 0) 0.9760 (= 1) −
20 Rail transportation 0.0080 (> 0) 1.0110 (= 1) +
21 Trucks 0.0210 (> 0) 0.9680 (= 1)
22 Electricity 0.0770 (> 0) 0.9420 (< 1) +
23 Gas 0.0650 (> 0) 0.9520 (< 1) −
Petroleum refining 0.0230 (> 0) 0.9760 (= 1) + + −
24
Real estate 0.0280 (> 0) 0.6890 (< 1) +
25
26 Note 1: Figures in parenthesis indicate statistical equality or non equality to the number in the
27 parenthesis. Note 2: Where the sign is positive, this means that there is a positive relationship
28 between that factor and returns. Where the sign is negative, the opposite holds. The magnitude of
29 each factor is discussed in detail in the relevant chapter. Where no sign appears, the coefficient is
30 statistically insignificant.
∗ ME, B/M, A/ME, A/BE and E/P correspond to market value of equity, book to market, total assets
31 to market equity, total assets to book equity and earnings to price ratios respectively.
32
33 The beta of the water transportation industry is significantly lower than the beta
34 of the rail transportation industry and significantly higher than the beta of the
35 real estate industry.
36 The only industry beta which exhibits significant temporal variability is that of
37 the petroleum refining industry. In the water transportation and the other six
38 industries no significant temporal change has occurred.
39
40
1 Chapter 6: The stock market perception of industry risk and macroeconomic

2 factors: The case of the U.S. water and other transportation stocks.
3
Period Covered: July 1985 – June 1995
4
Methodology: Multifactor Model employing macroeconomic factors
5
Major Findings:
6
7 Industry Multifactor Model Parameters
8
9 Industry Alpha Beta MIP UTS UOG UCG UI*
10
11 Water transportation 0.0346 (> 0) 0.9449 (< 1) − +
12 Air transportation 0.0103 (> 0) 0.9538 (= 1) +
13 Rail transportation 0.0289 (> 0) 0.9875 (= 1) −
14 Trucks 0.0176 (> 0) 0.9698 (= 1) + −
15 Electricity 0.0642 (> 0) 0.9248 (< 1) − −
Gas 0.0426 (> 0) 0.9579 (< 1) + −
16
Petroleum refining 0.0320 (> 0) 0.9741 (= 1) + +
17 Real estate 0.0348 (> 0) 0.7543 (< 1) −
18
21 between that factor and returns. Where the sign is negative, the opposite holds. The magnitude of
statistically insignificant.
23 ∗ MIP, UTS, UOG, UCG, UI correspond to unanticipated changes in monthly industrial production,
24 the term structure, oil prices, consumption and inflation respectively.
25 The beta of the water transportation industry is not significantly different to the
26 beta of any other transportation or non – transportation industry.
27
28
29
30
31
32
33
34
35
36
37
38
39
40
1 Chapter 7: The stock market perception of industry risk through the

2 utilisation of a General Multifactor Model.
3 Period Covered: July 1985 – June 1995
4 Methodology: Multifactor Model employing both micro and macroeconomic
5 factors
6 Major Findings:
7
Industry Multifactor Model Parameters
8
9
10 Industry Alpha Beta MIP UTS UOG UCG UI
11
12 Water transportation 0.0334 (> 0) 0.9438 (< 1) − +
13 Air transportation 0.0206 (> 0) 0.9471 (= 1) + −
14 Rail transportation 0.0289 (> 0) 0.9878 (= 1) −
Trucks 0.0228 (> 0) 0.9593 (= 1) + −
15
Electricity 0.0710 (> 0) 0.9264 (< 1) − −
16 Gas 0.0603 (> 0) 0.9580 (< 1) + −
17 Petroleum refining 0.0197 (> 0) 0.9676 (= 1) + +
18 Real estate 0.0348 (> 0) 0.7543 (< 1) −
19
20 Industry ME B/M A/ME A/BE E/P
Water transportation + −
21
Air transportation −
22 Rail transportation
23 Trucks
24 Electricity +
25 Gas −
26 Petroleum refining + + −
27 Real estate
28
between that factor and returns. Where the sign is negative, the opposite holds. The magnitude of
32 statistically insignificant.
33
34 The beta of the water transportation industry is not significantly different to the
35 beta of any other transportation or non – transportation industry.
36
37
38
39
40
40
39
38
37
36
35
34
33
32
31
30
29
28
27
26
25
24
23
22
21
20
19
18
17
16
15
14
13
12
11
10
9
8
7
6
5
4
3
2
1
Cross-Industry Comparisons of the Behaviour of Stock Returns

APPENDIX B
Empirical Evidence Regarding the Macroeconomic Factors Employed in Kavussanos and Marcoulis (2001).
Factor Employed Study Findings of Study Findings of this Book Applicable Industry
Monthly growth of industrial production Poon and Taylor (1991) − ve effect − ve effect Water transportation
Bong – Soo Lee (1992) + ve effect − ve effect Electricity
Chen, Roll and Ross (1986) + ve effect
Pearce and Roley (1985) n.s.
Chen and Jordan (1993) n.s.
Unanticipated changes in term structure Chen, Roll and Ross (1986) + ve effect +ve effect Air transportation
Poon and Taylor (1991) n.s. +ve effect Trucks
Chen and Jordan (1993) n.s. +ve effect Petroleum refining
− ve effect Electricity
Unanticipated changes in oil prices Chen, Roll and Ross (1986) + ve effect +ve effect Water transportation
Chen and Jordan (1993) − ve effect +ve effect Gas
+ve effect Petroleum refining
− ve effect Trucks
− ve effect Real estate
Unanticipated changes in consumption Rubinstein (1976) + ve effect − ve effect Rail transportation
Lucas (1978) + ve effect − ve effect Gas
Breeden (1980) + ve effect
Wasserfallen (1989) − ve effect
Unanticipated inflation Chen, Roll and Ross (1986) − ve effect n.s. All industries
Hamao (1988) − ve effect
Wasserfallen (1989) − ve effect
Poon and Taylor (1991) n.s.
Martinez and Rubio (1989) n.s.
141
40
39
38
37
36
35
34
33
32
31
30
29
28
27
26
25
24
23
22
21
20
19
18
17
16
15
14
13
12
11
10
9
8
7
6
5
4
3
2
1
142
APPENDIX C
Empirical Evidence Regarding the Microeconomic Factors Employed in Kavussanos and Marcoulis (2001).
MANOLIS G. KAVUSSANOS AND STELIOS N. MARCOULIS

Factor Employed Study Findings of Study Findings of this Book Applicable Industry
Market value of equity Banz (1981) − ve effect + ve effect Water transportation

Basu (1977, 1983) − ve effect + ve effect Petroleum refining
Reinganum (1981) − ve effect − ve effect Gas
Lakonishok and Shapiro (1986) − ve effect
Fama and French (1992) − ve effect
Book to market value of equity Stattman (1980) + ve effect +ve effect Electricity
Rosenberg et al. (1985) + ve effect +ve effect Real estate
Fama and French (1992) + ve effect
Chen et al. (1991) + ve effect
Asset to market value of equity Fama and French (1992) + ve effect +ve effect Rail transportation
Bhandari (1988) + ve effect +ve effect Petroleum refining
Asset to book value of equity Fama and French (1992) − ve effect − ve effect Water transportation
− ve effect Air transportation
− ve effect Petroleum refining
Earnings to price Ball (1978) + ve effect n.s. All industries
Reinganum (1981) + ve effect
Basu (1983) + ve effect
Fama and French (1992) n.s.

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1

1 markets to specialisation, offering shipment of even the most everyday products

1 of these subsectors are compared between themselves. This investigation enables

1 Another institution of international prominence which is dealing with

1 Table 1. Maritime Industry Sectors.

1 as that estimated in Kavussanos et al. (2002) and Kavussanos and Marcoulis

1 6.2. Microeconomic (Company speciﬁc) Factors as Determinants

1 6.5. Macroeconomic Factors and International Industry Returns

1 Chapter 6: The stock market perception of industry risk and macroeconomic

1 Chapter 7: The stock market perception of industry risk through the

Cross-Industry Comparisons of the Behaviour of Stock Returns

MANOLIS G. KAVUSSANOS AND STELIOS N. MARCOULIS

Market value of equity Banz (1981) − ve effect + ve effect Water transportation

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