Proceedings

which in a reference time span between 2006 and 2009 had a direct impact on the
dynamics of stock prices traded on the capital market in Europe as well as to use such
base for the selection of an optimal set of portfolios.
1. MODEL USED TO IDENTIFY AND ANALYZE THE CONNECTIONS
BETWEEN FINANCIAL DESCRIPTORS – RETURN OF FINANCIAL
INSTRUMENTS IN ORDER TO SELECT AN OPTIMAL PORTFOLIO
A first step in initiating an analytical approach aiming at the impact of financial
descriptors on the market values return of financial instruments traded on developed
European capital markets is to identify a formal model that highlights these
interconnections:
returnit = ρxit + γt + ηi + εit (1)
x – vector of explanatory variables (financial descriptors)
ρ – independent variable coefficient
Closeit
returnt = ln( ) * 100 (2)
Close
ηi – overlooked effects
γt – common deterministic trend
εit – random disturbance assumed to be normally and identically distributed
where E(εit) = 0; Var (εit) = σ 2 > 0 (3)
In our opinion, from the manifold financial descriptors, we performed a selection of
nine indicators that characterize liquidity, leverage, effectiveness and profitability of
an issuer:
it−1
� Current liquidity (LC) – reflect the possibility of current patrimony elements
to be converted into liquidities within a short period of time in order to pay off
current debt. If the total amount of current liabilities is higher than the total
value of current assets then this indicator is sub-unit and this could indicate
that the short-term financing was used to purchase "long-term assets which is
normally considered dangerous, although there are sectors where a sub-unit
value is considered acceptable:
Ac – current assets
Dts – current short-term debt
Ac
LC = * 100 (4)
Dts
� Quick liquidity (LR) - reflects the possibility of current assets that are
materialized in outstanding debts and treasury to cover current liabilities; we
subtract the stocks because these have the lowest characteristic of liquidity of
current assets:
Ac − S
LR = * 100 (5)
Dts
S – stocks
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