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Facebook's Stock Price Dynamics and the Finance CAPM Model

Saturday, September 1, 2012 21:33

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Now that I’m a Professor at the Anderson School of Management at UCLA, it is time for me to do some academic finance. Rather than publish my empirical work in the Journal of Finance, I will publish it right here. The submission fee is lower and the probability of publication is higher and the time to publication is shorter. Does Google Scholar count cites to blog posts?

Facebook has traded for 73 days. This is roughly enough days to allow us to do some daily econometrics. The question that interests me is “what is Facebook’s Beta?” How does its daily stock price return correlate with the daily return on the SP500? The answer is that the correlation is zero!

reg dfbook dsp500

I then include the daily return for Facebook’s little friend Zynga as an additional explanatory variable.

regdfbook dsp500 dz , N = 73, R2= .20

dfbook Coef.Std. Err.

dsp500 .1909244.4645074
dz .3058899.0734589
_cons -.0063281.0043832

Note the efficient markets hypothesis at work, Zynga and Facebook have a correlation of daily returns of .44. The market believes that a lot of Facebook’s profitability is determined by Zynga. To my surprise the correlation of the trading volume is higher between Facebook and the SP500 than between Facebook and Zynga

corr z_vol f_vol sp_vol
(obs=74)

| z_vol f_vol sp_vol
————-+—————————
z_vol | 1.0000
f_vol | 0.1928 1.0000
sp_vol | 0.3514 0.2665 1.0000

Should I give up my day job and become a pure finance guy? Would this blog be more interesting if I pursue this strategy?

2012-09-01 21:28:53

Source: http://greeneconomics.blogspot.com/2012/09/facebooks-stock-price-dynamics-and.html

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