Review Of The FTSE 100 Index

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The FTSE 100 index comprises of 100 largest companies in terms of market capitalisation, listed on the London Stock Exchange. It is maintained by FTSE group, a subsidiary of London Stock Exchange and was launched in 1984.
FTSE 100 index is a good indicator of international and local economic conditions as it responses in changes to not just the local market but to markets all over the world. Companies included in the FTSE 100 represent about 80% of the total market capitalisation on the London Stock Exchange. Market capitalisation (size) of the index makes it a good sample to use in examining the cross section of average stock returns in the UK. Data and financial information about these FTSE 100 companies is more readily available in comparison …show more content…

Such studies have usually focused their research on a stock market within a particular country. There are plenty of studies on the UK stock market as well. These studies generally conduct studies over a considerably long periods of time and involve mostly all companies in the UK. Due to insufficient data many companies are left out of sample which makes the sample an inadequate representation of UK market.
Moreover, some of the earlier research involves few variables in the estimation model. The two variables most commonly involved are, market risk (Beta) and market capitalization. Inclusion of leverage and book to market equity will provide a clearer understanding of the explanatory variables and make the estimations more robust.
Research questions act as a roadmap which directs the researcher and helps staying focused on the topic. They assist in determining the scope of the study and act as a catalyst for thinking in the right direction by asking questions like: Where to get the relevant information and data from? How to ensure the data is trustworthy? Which methodology or model will be most appropriate?
1.2 Aims and …show more content…

In addition, we examine whether the variables are significant or not and should therefore be considered or left out of investment decisions.
1.3 Research Questions
Research questions help us by guiding in the right direction so that research is manageable, relevant and ultimately provide sufficient scope to form up a research report.
The questions this research looks forward to answer is as follows:
Can the cross-sectional predictability of average stock returns of FTSE 100, be explained from beta, size, leverage, book to market equity and price earnings ratio. This is not only carried out for individual stocks but also applied to an industry level analysis to test whether the results stand true for individual stocks as well from an industrial perspective.
1.4 Structure
This paper is made up of 5 chapters and is its components are organised as mentioned below:
Chapter One - Introduction: The first chapter gives an overview of the topic along with some background information and objectives of the

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