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Abstract - Quest for Global Competitiveness - Universidad de Puerto ...

Abstract - Quest for Global Competitiveness - Universidad de Puerto ...

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V. Tests ResultsRisk-Adjusted ReturnsTime series regressions tests are used to examine the in<strong>for</strong>mation content of theelements presented above. To explain average returns on these stocks, the Fama andFrench (1993) three-factor mo<strong>de</strong>l is used. Table 4 presents the results of the set ofportfolios distributed according to PRER levels. The results reveal that firms with thelowest levels of PRER (portfolio one) are the most un<strong>de</strong>rvalued and firms with thehighest level of PRER (portfolio ten) are the most overvalued. The pension planelements that appear in the notes to the financial statements are also tested.Table 5 presents the results <strong>for</strong> the PBOR portfolio. Results suggest that the marketis also inefficient in incorporating this in<strong>for</strong>mation. The firms in the portfolio with thelowest level of PBOR (portfolio one) are the most un<strong>de</strong>rvalued and the firms in theportfolio with the highest level (portfolio ten) are the most overvalued. As presented inTable 6, firms in the portfolio with the lowest levels of FVPAR (portfolio one) appear tobe the most un<strong>de</strong>rvalued and the firms in the portfolio with the highest levels (portfolioten) seem to be the most overvalued.Table 7 FR portfolio results reveal that firms with the highest levels of un<strong>de</strong>rfunding(portfolio one) are overpriced and firms with the lowest levels of un<strong>de</strong>rfunding (portfolioten) seem to be un<strong>de</strong>rpriced. Firms that have overfun<strong>de</strong>d plans (portfolio eleven)appear to be un<strong>de</strong>rvalued.Finally, <strong>for</strong> comparison purposes the balance in LTD that appears in the balancesheet of firms is used. As <strong>for</strong> the LTDR, Table 8 shows portfolio tests results.Apparently, the market overvalues firms with the highest levels of LTD (portfolio one)and un<strong>de</strong>rvalues firms with the lowest levels (portfolio ten). Unlevered firms (portfolio11) appear to be un<strong>de</strong>rvalued. The results suggest that investors inefficientlyincorporate pension plan and LTD in<strong>for</strong>mation in to stock prices. The tests per<strong>for</strong>med<strong>for</strong> momentum reveal similar results.

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