The Difference Between Preferred & Common Stocks in Europe from the Market Perspective
Tomas Brabenec, Frantisek Poborsky, Sean Patrick Saßmannshausen
Keywords:
preferred stocks, common stocks, beta coefficient, stock valuation, competitiveness
Abstract:
Companies listed on the stock market must devote a great deal of attention to their market
position. They must increase their competitive advantage in the undeniably key process of the
issuance of stocks. As the issuance of preferred stocks has increased after the last crisis and in
the current period of low interest rates in Europe, they are becoming more favoured investment
instruments, we decided to analyse the real properties of preferred stocks in Europe in order to
increase the efficiency of joint-stock companies. Using a dataset comprising all companies having
both common and preferred stocks issued and traded on European markets between 2009-
2016, we determined the relationship of risk (measured by beta coefficients) and price volatility
among common and preferred stocks and bonds in Europe. Our findings show beta coefficients
of preferred stocks as systematically lower than beta coefficients of common stocks. Considering
a difference of up to 10% as negligible, however, preferred stocks showed a similar or higher beta
coefficient than corresponding common stocks of the same company in 53% of cases, whereas
for 33% of cases, the difference is only ±10%. Coefficients of variation in prices showed a similar
relationship, with only a negligible portion of preferred stocks bearing fixed (stable) dividends.
This result implies that currently traded preferred stocks in Europe in fact do not possess such
characteristics they are typically said to have, and in many cases they incur as comparable a risk
as do common stocks. This essential information should help to increase the efficiency and competitiveness
of joint-stock companies.
Fulltext download:
 The Difference Between Preferred & Common Stocks in Europe from the Market Perspective [PDF file] [Filesize: 1.11 MB]
 10.7441/joc.2020.03.04
Brabenec, T., Poborsky, F., & Saßmannshausen, P. (2020). The Difference Between Preferred &
Common Stocks in Europe from the Market Perspective. Journal of Competitiveness, 12(3), 64–81. https://doi.org/10.7441/joc.2020.03.04
|
