Busygin, E. G. (2020). The Speculative Nature of Public Companies Capitalization Factors. Zhurnal Economicheskoj Teorii [Russian Journal of Economic Theory], 17 (1), 144-155
To date, many concepts have been developed, within which researchers are trying to consider the investors decision making process in the face of uncertainty. Nevertheless, it is worth noting that work in this direction is based on one simple condition that characterizes behavioral finance as a direction — the absence of a rational beginning in decisions made by investors, which is further explained in terms of psychological characteristics of individuals, the presence of errors in analysis information, etc.
In this paper, author tried to make an attempt to draw a bridge between the theory of efficient markets and behavioral finance. It should be taken into account that investors, when making decisions, rely primarily on the capitalization of companies. In other words, the emphasis shifts from the personification of investors as subjects to their perception of certain events that they can interpret both rationally and irrationally.
The study assumes that the investor’s rationality and irrationality do not refer to the investor as a subject, but to the analysis of incoming information flows. The rationality is set by default in the framework of the efficient markets theory. The irrationality is the root of the behavioral finance concepts. An investor can rationally evaluate some factors, while irrationally analyzing the influence of other factors.
The paper presents data on for 8 of the largest public vertically integrated companies (BP, Chevron, ExxonMobil, Royal Dutch Shell, Total, Equinor, OMV, Imperial Oil) for the period from Q1 2006 to Q4 2017, and two dependent variables are also taken: capitalization and ROWA for the regression analysis.
The goal of the work was achieved: within the framework of the work, it was possible to identify non-speculative factors: the level of oil production by OPEC countries, the world uncertainty index, return on sales in the upstream segment and return on equity. In other words, information could be divided into groups from the point of view of rational perception by investors.
The findings of the work should be used by private investors, financial analysts and other stock market participants to optimize investment decision-making models.