Beta coefficient and fundamental strength in companies listed on the Warsaw stock exchange

The beta ratio is one of the most important measures used in the capital market. Its area of application is very wide. Most commonly, the beta factor is used in risk assessment and management, methods of valuation of the company or the CAPM (Capital Asset Pricing Model - a model of a capital asset valuation). An interesting addition to these areas is whether the beta coefficient as a measure of risk is related to the fundamental power of the company.

Fundamental strength in a synthetic way describes the economic and financial condition of the company's position in the sector and the market. Fundamental strength can be measured by the fundamental power indicator (FPI). It should be noted that the first measure of fundamental strength was TMAI, created by Tarczyñski W.: Taxonomy measure the attractiveness of investment in securities, Statistical Review No. 3/1994. TMAI is based on the idea of a synthetic measure of development.

The main goal of the paper is to investigate the relationship between the beta coefficient set based on the classical Sharpe model and the fundamental strength of the company measured by the fundamental power indicator (e.g TMAI). The research will answer whether the beta coefficient as a measure of risk is significantly associated with the economic and financial condition of the company. This will allow verification of the possibility of using the beta coefficient not only as a measure of risk, but also as an element that can be used in assessing the economic and financial situation of the company. This means that the beta coefficient can be an important element of fundamental analysis performed for listed companies. The study refer to the period 2010-2014. This research will use financial and economic quarterly data for companies listed on the Warsaw Stock Exchange and published by Notoria Service. The analysis will be carried out for companies which were included in WIG20 index in 2010 and at the end of 2014.