Report: Factors Influencing Returns of Irish Technology Stocks

This report examines the factors influencing the returns of three Irish technology stocks: Aminex Plc, Cairn Homes, and VR Education. It explores market-to-book value ratios, return on equity, industry performance, investor sentiments, and economic factors, highlighting their impact on stock prices. The study also assesses the validity of the research using the Efficient Market Hypothesis (EMH), discussing its theoretical framework, assumptions, and limitations. The report analyzes the application of EMH to the selected stocks, considering weak, semi-strong, and strong forms of market efficiency. It also addresses potential limitations of the EMH, such as behavioral biases and information imperfections, providing a comprehensive overview of the factors influencing the stock market and the validity of the research.

IRISH TECHNOLOGY
STOCKS

TABLE OF CONTENTS
TABLE OF CONTENTS.......................................................................................................................2
INTRODUCTION.................................................................................................................................3
MAIN BODY....................................................................................................................................3
Describing factors which influence the return of three stock.............................................................3
Model test for measuring the validity of the research (Efficient market hypothesis).........................5
Theoretical framework of EMH.........................................................................................................7
Assumptions of efficient market hypothesis......................................................................................7
Limitations of the methodological approach (efficient market hypothesis).......................................7
CONCLUSION.....................................................................................................................................8
REFERENCES......................................................................................................................................9

INTRODUCTION
It is very difficult for any entity to identify the specific factor which influences the
market as a whole. However, it is been true that stock market is considered as complex,
interrelated system under which large and small investor participates in order to invest their
money with the expectation to earn great return on capital. Thus, in this report explanation
will be provided on factors which likely to influence the return of Aminex Plc, Cairn Homes
and VR Education entities which is listed in the stock exchange of Irish where appropriate
model will be selected so that better evaluation of report will get developed.
MAIN BODY
Describing factors which influence the return of three stock
According to the views of Fornell, Morgeson and Hult (2016) One of the most
important factors which affect the stock market performance is the market to book value
ratio. However, many other factors are there which affect the price which may be in terms of
rise or fall.
According to the Yin and et.al., (2018) there are main other factor which mainly affect the
return on share of all the three stocks are:
Return on equity- in the views of Eriksen (2018) This is the factors which mainly
trisecting the profitability of the company. However, it is true that ROI is assessed against the
cost of equity and which is generally measured with the model called Asset Pricing Model.
Now if it will have measured with the Aminex Plc which is 8.30%, it has given a discrepancy
of -7.46% which is also between return and cost. In the views of Dow, Goldstein and
Guembel (2017) it is stated that Often, it is been found that the share prices of entities which
engage in dealing with same line of business will generally move in competition with each
other. It is mainly because the market conditions for such industry affected both in same way.
It is also found that Aminex Plc’s most recent equity get was an unsatisfactory in comparison
to its past performance in past year. It is because of components like financial leverages
which badly affect the mother of all ratios that is return on equity.
In the views of Cole and et.al., (2018) Cairne business is sensitive under the
performance of wider economy. However, according to analysis of Irish stock exchange, it is
stated that entity has particular changes in the its interest rates, employment and general

consumer confidence. Changes in this economic condition of Ireland will likely to influence
the housing prices and house sales rates because of which its return of share gets influenced.
In accordance with the Qiu (2008) it is analysed that institutional investors are the one
which holds more than half of public traded shares of the entity which listed under US stock
exchange. With the context of VR Education, return on investment of entity gets influenced
because it is mainly considered as the process where investors mainly buy and sell shares
which is also in large magnitudes which influence the share prices. This situation simply
affected when small amounts of shares available on market trading. In the context with VR
Education it seems that entity too exposed to higher volatility which affected its return.
Financial health: This is another factor which mainly influenced the return of
Aminex plc stock. It has been analysed that currently, Aminex has the zero-debt on its
balance sheet because of which it maximise the return on capital and will increases its debt
because of lower cost of capital. However, other than this, it is analysed that entity has trade
off practises which means it strictly follows obligations regarding the debt which reduced its
financial flexibilities.
In the context with Cairn Homes, Elango, Dhandapani and Giachetti (2018) stated that
The company is monitoring availability of mortgage, including impact from the regulations
on lending and rates which is also as ongoing basis. Thus, in order to analyse recent changes
to the central bank of Ireland loan because of which more demand will get increases which
influence the return of stock.
In regards with VR Education return, it is analysed that with the stake of 24.7%,
private equity firms are the another class of owners of entity. These are the group which
mainly influence the key decision of company. Thus, these are shareholder which mainly
influence the return of share of the company.
Valuation: according to a recent analysis it is been evaluated that entity’s breakeven
is near. It is because, it had been anticipated that company to incur final loss in the year 2019
(Factors that can affect stock prices, 2019). Its return on share prices likely to influence
because of its no debt obligation where more shareholders will get attracted because this
policy makes them less risky investment. Recently, there has been decrease in the share price
of Aminex Plc where it is being found that the share price gets down 19% about a month

which is more concerning because company did not have earn the profit in the last 12
months.
In the context of Cairn Home organisation, it had been analysed that health and safety
breaches results in injuries to entity’s staff or the sub-contractors which operating in the sites
of company. This result in delay in constructions which directly impacted upon return prices
of stock of entity.
In the context of VR Education, Hutchinson, Seamer and Chapple (2015) stated that
another big group of its shareholders include general public which hold 11.04% with this
huge ownership this group also affect the return of shares for the stock of company because
they have power regarding the key policy decision in entity. This is the way which affect the
valuation of entity and because of which return of stock gets influenced.
Some factors which influence the price of share as follows:
 Any release of news on earnings and profits and regarding future estimates earnings
of listed firms in market.
 Announcement of dividend by other entities.
 Introducing any new products or services in the market.
 Securing any large contract by entity.
 Any type of takeover or merger by firms.
 Any change of management.
 Occurrence of any accounting error or scandals.
These are the major three factors that is industry performance, investor sentiments and
economic factors which mainly influence the return of share price of any entity which is
listed in the stock exchange.
Model test for measuring the validity of the research (Efficient market hypothesis)
In order to prove the validity of the work, appropriate model which test the validity of
these three factors that is economic, industry performance and investor sentiments is the
“Efficient market hypothesis”. It is mainly an investment theory through which all the
information related to share market gets reflected. It is a type of assumption which states that

the market cannot be beat it is because everyone in the market has a same position.
According to this framework, neither technical nor fundamental analysis can produce return
on the risk which get adjusted. However, only one sided risk gets adjusted in order to
generate the return on the share prices of the company.
According to efficient market hypothesis model, stock of entity always trade at their
fair value on the stock exchanges because of which it is impossible for investors to either
purchase undervalues stocks or to sell any of the stock for inflated prices. However, in the
words of Lo (2017) mainly three different versions are offered with this theory that is weak,
semi-strong and strong through which all the important informaton which relates to share
price gets evaluated. It is the main reason because of which stock always traded at fair value
by which they can be purchased undervalued and gets sold at overvalued.
However on the contrary Urquhart and McGroarty (2016) argue that framework of
efficient market hypothesis is mainly associate with the idea of 'random walk'. This is the
term which used in the literature of finance in order to represt the series of price under which
all the subsequent change in price represt the randome departure from the prices of previous
shares of entity. The main logic behind this term is that if any flow of information is
unimpeded then it will directly reflect the prices of stock through which price gets changed.
In the views of De Grauwe and Grimaldi (2018) efficient capital is the market subject
where mainly these three condition gets included which are as follows-
 for the traded securities, there are generally no transaction costs.
 All information which gets generated is costless and gets available to all the market
paritcipants.
 All the participants of the share prices must needs to be agree on the implications of
current information which for current prices.
However, this is the arugument which is cannot be considered as sufficient and it is also not
considered as important fot the market efficiency. In regards with this theory author also
argued with the composition of this model which is divided into three parts that is weak form,
semi-strong form and strong form.
In the words of Arthur (2018) weak form of efficient market hypothesis assume that
the current stock prices reflect all the historical market information such as sequence of price

related information, trading volumes and any other market generated information. Semi-
strong form of EMH assumes that current prices of stock reflects information related to both
historical information and new publicly available information. Strong EHM assume that
information related to stock price reflects information which is from both public and private
sources.
Theoretical framework of EMH
The theory of the efficient market has always been a debatable topic which is between
academics and practitioners. Through the debates and argument it is been analysed that some
represent supportive evidence for efficient market hypothesis and some discovered it
negatives in terms of share price. One of the top debate of Chaos theory analyse that change
in price are always a result of complex model which is known as dynamic model. In terms of
chaos theory structure and randomness are closely related. It is because change in share price
looks like random but it is structured if it is deeply get analysed.
Assumptions of efficient market hypothesis
The main and central assumption for efficient market hypothesis are generally
considered as the perfect market theories under which there are no transaction related costs,
here information which generated are also costless, investors mainly have homogeneous
expectations because of that investors mainly are rational and market become efficient.
However, in real world there was no concept which relates to underlying perfect market
competition but there is an evidence which states that even in imperfect world there exist an
efficient market hypothesis. The fundamental assumptions of EMH includes rational
investors, perfect information and no transaction costs.
Limitations of the methodological approach (efficient market hypothesis)
It is been analysed that both investors and researcher have disputed the framework of
efficient market hypothesis both in terms of empirically and theoretically. According to
behavioural economists, imperfections in financial market will always be the result of terms
like overreaction, representative bias information bias and various other predictable human
errors in the process of developing information. The main limitation of this theory is that it
assumes that all the necessary information has been perceived by all the investors which is
precisely in same manner because of which problem get arises with the valuation of stock
prices by the investors. This is the limitation which impose the problem and also affect the
reliability of efficient market hypothesis framework. Another problem get occurred when one

investor looks for undervalued opportunities in market and another evaluate it as a great
opportunity. Thus, this creates a difference in analysing the fair market value of stock by
which prices of return on share gets influences for the entities which are listed in the stock
exchange.
However, in the context with Aminex Plc, it is anticipated that the company will incur
the final loss in year 2019 before generating positive profit of US$3.1 million during the year
of 2020. Entity is currently operating purely with the perspective of its shareholders funding
because of which it has no debt obligations. This is factor which mainly reduced that concern
regarding repayment and it also makes it less risky for the investors to invest in the shares of
entity.
CONCLUSION
From the above report, it can be concluded that there are various factors because of
which share prices of entities which is listed in stock exchanges gets affected. Market news,
industry performance, investors sentiments and economic factors are some factors because of
which large change gets analysed share prices because of which entity's profitability also gets
affected. In this report, explanation of such factors with the context of Aminex Plc has been
evaluated with appropriate model. Efficient market hypothesis is the framework through
which it has been analysed that each investor has its own method of measuring share prices in
market. Some considered as positive opportunities and some considered it as negatives
opportunities because of which entity has to face influence of return on share price.

REFERENCES
Books and Journals
Eriksen, S.S., 2018. Tanzania: A Political Economy Analysis.
Qiu, L.X., 2008. Selection or influence? Institutional investors and corporate acquisitions.
Arthur, W.B., 2018. Asset pricing under endogenous expectations in an artificial stock
market. In The economy as an evolving complex system II (pp. 31-60). CRC Press.
Cole, J.C and et.al., 2018. Marketing energy efficiency: perceived benefits and barriers to
home energy efficiency. Energy Efficiency. pp.1-14.
De Grauwe, P. and Grimaldi, M., 2018. The exchange rate in a behavioral finance
framework. Princeton University Press.
Dow, J., Goldstein, I. and Guembel, A., 2017. Incentives for information production in
markets where prices affect real investment. Journal of the European Economic
Association. 15(4). pp.877-909.
Elango, B., Dhandapani, K. and Giachetti, C., 2018. Impact of institutional reforms and
industry structural factors on market returns of emerging market rivals during
acquisitions by foreign firms. International Business Review.
Fornell, C., Morgeson III, F.V. and Hult, G.T.M., 2016. Stock returns on customer
satisfaction do beat the market: gauging the effect of a marketing intangible. Journal of
Marketing. 80(5). pp.92-107.
Hutchinson, M., Seamer, M. and Chapple, L.E., 2015. Institutional investors,
risk/performance and corporate governance. The International Journal of
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Lo, A.W., 2017. Efficient markets hypothesis. The New Palgrave Dictionary of Economics,
pp.1-17.
Urquhart, A. and McGroarty, F., 2016. Are stock markets really efficient? Evidence of the
adaptive market hypothesis. International Review of Financial Analysis. 47. pp.39-49.

Yin, S and et.al., 2018. Stock price reaction to profit warnings: the role of time-varying
betas. Review of Quantitative Finance and Accounting. 50(1). pp.67-93.
Online
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