Deciphering Sector Performance in the Finnish Stock Market: A Study on Systematic Risk and Investment Strategies

Abstract

This paper offers an empirical analysis of the Finnish stock market with a focus on sector behaviour, performance, and the effects of systematic risk and economic downturns on sector returns. Despite the fact that Finnish sector classifications were found to differ from the GICS classifications, this research emphasizes the significance of local context in investment decisions. Four possibilities are examined in the study: (1) Defensive sectors generate higher excess returns on average compared to cyclical sectors during economic downturns or market crises, (2) Investment strategies that overweight safe securities outperform traditional benchmarks in terms of risk-adjusted returns, (3) Sector performance is influenced by systematic risk, and (4) During economic downturns or market crises, the benchmark index has generated higher positive returns in comparison to gold. Only the third hypothesis is supported by the data, demonstrating the strong influence of systematic risk on sector performance. The results cast doubt on accepted theories about investing, emphasize the value of making decisions based on data, and emphasize how difficult it is to invest. Future research directions and limitations of the study are also discussed. This study offers important insights for improving investment strategies as well as to a better understanding of regional market dynamics.