Business Management

Krasimir Kulchev
THE INTERPRETATION OF FINANCIAL STATEMENTS IN TERMS OF CONTEMPORARY FINANCIAL ANALYSIS
JEL: M 41

Keywords: capital market, analytical models, economic value added, interpretation of financial statements

Abstract: The evolution of financial analysis is accompanied by an extensive use of indicators whose calculation is based on data provided both by entities in their financial statements and by financial markets. The analysis of data and indicators generated by the capital market is considered to be of primary importance when studying the financial position of enterprises. This view is supported by a substantial number of analysts and, although not applicable to all enterprises, it raises a number of questions, two of them being whether the new analytical indicators are replacing the classic indicators of financial statement analysis and whether financial statements have retained their fundamental role as a primary source of data in studying the financial position of enterprises. The objective of this paper is to answer these questions by approaching the interpretation of financial statements within the context of some unorthodox views about the evolution of financial analysis.
Tsetan Pavlov
APPLICATION OF BEHAVIORAL FINANCE IN MODELING BULGARIAN EQUITY RISK PREMIUM
JEL: G10, G14

Keywords: behavioral finance, equity risk premium puzzle, market efficiency, capital markets, required return

Abstract: The paper seeks a plausible explanation of the magnitude of equity risk premium, by modeling leading behavioral concepts in the conditions of Bulgarian capital market. Firstly, the fair equity risk premium is derived by basic neoclassical consumption-based model. Subsequently, the conducted comparison between fair and empirical risk premium indicates that the demanded compensation by investors for owning Bulgarian stocks cannot be rationally explained, i.e. there is an equity risk premium puzzle on BSE. On this basis, we have applied a behavioral model based on two well-known characteristics of human behavior in conditions of risk and uncertainty � loss aversion and narrow framing. Set at reasonable levels of risk and loss aversion, the model has managed to generate risk-free rate and market returns close to empirical levels.

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