A Risk-Return Analysis Of Those Firms Ranked Highest For Price Growth Persistence In A Time Of Economic Recession

Common stock price growth persistence is an important criterion for determining the value of any company, and is thus reported by rating services and included in some financial databases. One measure of price growth persistence is used by Value Line as a primary factor in their proprietary rating for the timeliness of investment for all companies in their database. Previous studies on the subject of price growth persistence have ignored the underlying macroeconomic environment, and have concentrated solely on the micro variables of firms that have steady price growth persistence, or the lack thereof. The purpose of this study is to extend previous work in identifying the financial variables that determine value for those firms rated by Value Line as having the strongest price growth persistence in their database in a period of economic recession and financial market turmoil. The data for this study were collected for the year 2008, a period of economic downturn precipitated by instability in the financial markets. The effects of that recession continue at the time of this writing. As in previous studies of this type multiple discriminant analysis is used to separate the group of firms with the strongest ratings for price growth persistence, and a group of firms chosen randomly but from the same industries as the first group. The distinction between the two groups is made on the basis of their respective risk-return profiles.