טכניון מכון טכנולוגי לישראל
הטכניון מכון טכנולוגי לישראל - בית הספר ללימודי מוסמכים  
M.Sc Thesis
M.Sc StudentBrook Tatiana
SubjectApplication of the Main Security Pricing Models to the
"New Economy" Sector in Israel
DepartmentDepartment of Industrial Engineering and Management
Supervisor Professor Raphael Trifon


Abstract

Different theories try to explain the improvement of economic performance of the 90’s. The beginning of the world economic crisis, in the fall of 2000, created uncertainty about the impact of the "New Economy" on the world economy.


In this research work we addressed two main issues: first, based on recent economic literature, we studied analyses of the "New Economy" sector. We attempted to define its characteristics, and the major traits of the companies that comprise it. Subsequently we tried, by statistical means, to check how “New Economy” firms behave in the Capital Market. In our study we used benchmark models of two kinds: one is the CAPM, which represents a classic approach to calculating normative yields on stocks. The other - a "three-factor model" - recently developed by Fama and French, which - in addition to the Market Factor of the CAPM- recognizes individual Firm Factors in normative yield calculations. Such Firm Factors are market equity (ME) and book-to-market equity (BE/ME). Our sample was based on the Capital Market of Israel.


We have found that the average returns on common stocks of firms in the local "New Economy", do not fit the CAPM model. The CAPM model did not fare much better in previous studies of local companies of the conventional sector, but our study could not be extended to this issue. However, we have found, that the three-factor model by Fama and French does explain the behavior of the "New Economy" sector of Israel, for some variation of the model.