THE MAGIC FORMULA - EN UTVÄRDERING AV EN FUNDAMENTAL INVESTERINGSSTRATEGI PÅ DEN SVENSKA AKTIEMARKNADEN

Abstract

This thesis examines the predictive powers of the basic stock picking model, The Magic Formula (MF), as well as the modified version of the model, The Free-Cash-Flow augmented Magic Formula (MF-CF) as suggested by Davydov, Tikkanen and Äijö (2016). By using a sample of the firms listed in the Stockholm Stock Exchange during 2008-2018, our results indicate that both models predict high risk, but only the MF provide higher returns. Contradictory to the findings in the Finnish study by Davydov et. al (2016), none of the models predict significant positive risk-adjusted positive abnormal returns according to the capital asset pricing model (CAPM) used in our study.