Determinant Stock Return

CHAPTER 1

INTRODUCTION

1.0    Introduction.

One of the most important factors towards economic growth is investing. We know to maximize profit and minimize loss of investing are the main criteria for effective decision in stock market same as other markets. Good position in stock market would attract capital and investors with consideration degree of risk and expected result pick out their shares. Hence, when capital markets and financial resources is efficient thus it can attract investors and if more allocation of resources is efficient, it will make fluctuation of prices be develop logically based on fundamental factors. The unattractiveness of investment is when stock prices changes rapidly and fluctuations due to unreasonable factors. In the end, reduce control the outflow of capital from the market would reduce capital investment and economic growth. (Sarbanha, Esmail Amiri and Molaii Neghad, 2010)

1. Research Background.

1. Stock Return

What we can say about stock return? What is the importance knowing stock return? How do we determine the factor that affected stock return? The entire question will be our interest of this study about stock return. Stock is defining as ownership of a companies’ share and represents a claim on the company's assets and earnings. When we buy more stock, our ownership share in the company becomes greater. Return on stock is the gain or loss of a security in a particular period. The return consists of income and capital gains made from investment and quoted as percentages. (Lam & Lian Ang, 2006)

There are many importance of knowing stock return which acts as benchmark, for future business planning and to establish a financial plan. Common key indicator to a business or investment total performance call as return on investment. To measure business or investment performance is by measuring amount of profit with invested amount. Benchmarks allow investor to compare the performance of two different investments (www.financial.com). Return on investment has important relates to business planning especially when observed for changes each year. Example when a company decide to invest on a new equipment, either to adding or reducing the equipment, it can be simpler after considering the impact of return in investment for the business, as it will help company to determine how fast the equipment will pay for itself. Establishing a financial plan is important when know stock return because investment that can give a higher return means carry higher risk. Thus, a sound financial plan must take this into account to avoid lose money when carrying risk. A good financial plan such as volatile investment is part of long term investment plan. Considering a mix of investment to balance overall return in investment, will give more consistent investment results. (Lam & Lian Ang, 2006)