AN EMPIRICAL INVESTIGATION OF THE RELATIONSHIP AMONG P/E RATIO, STOCK RETURN AND DIVIDEND YIELS FOR ISTANBUL STOCK EXCHANGE

Year 2010, Volume: 2 Issue: 1, 15 - 23, 01.06.2010

Funda H. Sezgın

Abstract

The price to earnings ratio (P/E) is widely used, particularly by practitioners, as a measure of
relative stock valuation. Price to earnings is an indicator which indicates current mood of
investors how much they are willing to pay per unit of company earnings. Traditionally, the P/E
ratio has been assumed to be an indicator of the quality of an investment; a relatively low P/E
ratio implies a good investment, whereas a relatively high P/E ratio indicates a “poor” investment
prospect.
The aim of this study is to identify relationship among market stock return, dividend yields and
price to earnings ratio affect in the period 2000.01-2009.12. Therefore, to determine long-run
and short-run relationship, Johansen cointegration tests, error-correction models and Granger
causality tests are used.

Keywords

Price to Earnings Ratio, Stock Return, Dividend Yields, Time Series.

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