THE STOCK RETURN PREDICTABILITY: COMPARING P/E AND EV/EBITDA

Abstract

Purpose – The aim of this work is to pinpoint the association between stock retuns and financial dynamics, market dynamics and regional and firm-specific uncertainties. While dividend yield, P/E, EV/EBITDA, P/B, Investment Ratio, Leverage, Intangible Assets, Topline Growth, Country Risk, Standard Deviation, Geopolitical Uncertainties, and Liquidity are taken into consideration as factors affecting stock returuns, lagged value of dependent variable is also accepted as independent variable.      

Methodology-  All the equations are figured out by Generalized Method of Moments (GMM) while 2.549 data of 204 companies from 24 sectors traded at BİST between 1998-2014 are used in the study.

Findings- According to the outcomes of the model, the rise in Expected Dividend Yield, Investment Ratio, Sales Growth and Liquidity influence positively stock returns, whereas the uptrend in geopolitical risks, country risks, company specific risks and intangible investments affect the stock returns negatively. The decline in P/E and EV/EBITDA increases stock returns.

Conclusion- In addition to the increase in net profit, investment, dividend and sales, firms can ramp up their corporate value by using liquidity provider operations and augmenting free float ratios, and they can leverage the value in their operational activities. Also, while investors pay close attention to P/E and EV/EBITDA multiples simultaneously, investment maturity of them are about 1 year.

Keywords

• P/E,EV/EBITDA,stock return,liquidity,dividend yield

References

1. Aktaş, R. ve Karan, M. Baha. (2000), “Predicting Stock Returns Using Fundamantal Information and Multivariate Statistical Modelling: An Emprical Study on Istanbul Stock Excahange”, Hacettepe Üniversitesi İİBF Dergisi, Cilt.18, Sayı. 2, ss. 433-449.
2. Arellano, M. ve Bond, S. (1991), “Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations”, Review of Economic Studies, 277-297.
3. Baltagi, B. (2005). Econometric Analysis of Panel Data. Chicester, England: John Wiley and Sons Press.
4. Basu, S. (1977), “Investment Performance of Common Stocks in Relation to Teir Price-Earnings Ratios: A Test of Te Efficient Market Hypothesis”, The Journal of Finance, vol. 32, no. 3, pp. 663-682.
5. Batchelor, R. ve Orakcıoğlu, I. (2003), “Event-Related Garch: The Impact of Stock Dividends in Turkey”, Applied Financial Economics, vol. 13, no. 4, pp. 295-307.
6. Campbell, J. Y. ve Shiller, R. (1988). “Stock Prices, Earnings and Expected Dividends”, Journal of Finance, vol. 43, pp. 661-676.
7. Canbaş, S., Düzakın, H. ve Kılıç, S.B., (2002), “Fundamental and Macroeconomic Information for Common Stock Valuation: The Turkish Case”, Yapı Kredi Economic Review, vol. 13, no. 1, pp. 55-64.
8. Chang, H-L., Chen, Y. S., Su, C. W. & Chang, Y. W. (2008). “The Relationship between Stock Price and EPS: Evidence Based on Taiwan Panel Data”, Economics Bulletin, vol. 3, no. 30, pp. 1-12.

9. Dehaun, J. ve Jin, Z. (2008), “Firm Performance and Stock Returns: An Empirical Study of the Top Performing Stocks Listed on Shanghai Stock Exchange”, Academy of Accounting and Financial Studies Journal, vol. 12, no. 1, pp. 79-85.
10. Demir, A., Küçükkiremitçi, O., Pekkaya, S. ve Üreten, A. (1997), İMKB’de Sanayi Şirketlerinin Hisse Senedi Getirileri ile Finansal Oranları Arasındaki İlişkilerin Belirlenmesi ve Bu İlişkilere Göre Şirketlerin Sıralandırılması (1992-93-94 Yılları İçin Bir Uygulama), SPK Yayın No: 56.
11. Ege, İ. ve Bayrakdaroğlu, A. (2009), “An Analysis of the Performance of ISE Companies Stock Yields Using The Logistic Regression Method”, ZKU Journal of Social Sciences, vol. 5, no. 10, pp. 139-158.
12. Günalp, B., Kadıoğlu, E ve Kılıç, S. (2010), “Nakit Temettü Bilgisinin Hisse Senedi Getirisi Üzerinde Önemli Bir Etkisi Olup Olmadığının İMKB’de Test Edilmesi”, Hacettepe Üniversitesi İktisadi ve İdari Bilimler Dergisi, Cilt. 28, Sayı. 2, ss. 47-69.
13. Güriş, S. (2015). Stata ile Panel Veri Modelleri İstanbul: Der Yayınları.
14. Habib, Y. Zernigah, I.K. ve Muhammad A.K. (2012), “Dividend Policy and Share Price Volatility: Evidence from Pakistan” Global Journal of Management And Business Research, vol. 12, no. 5, pp. 78-84.
15. Holthausen, W. ve Larcker, D. (1992), “The Prediction of Stock Returns Using Financial Statement Information”, Journal of Accounting and Economics, Vol.15, pp. 373-411.
16. Horasan, M. (2009), “Fiyat/Kazanç Oranının Hisse Senedi Getirilerine Etkisi: İMKB 30 Endeksi Üzerine Bir Uygulama”, Atatürk Üniversitesi İktisadi ve İdari Bilimler Dergisi, Cilt 23, Sayı 1, ss. 181-192.
17. Karan, M. B. (1996). “Hisse Senetlerine Yapılan Yatırımların Performanslarının Fiyat/Kazanç Oranına Göre Değerlendirilmesi: İMKB Üzerine Ampirik Bir Çalışma”, İktisat, İşletme ve Finans Dergisi, 11, ss. 119. 26-35.
18. Khan, K.I, Muhammad, A., Arslan, Q., Adeel, N. ve Maryam, I.K. (2011), “Can Dividend Decisions Affect The Stock Prices: A Case of Dividend Paying Companies of KSE”, International Research Journal Of Finance and Economics, vol. 76, pp. 67-74.
19. Korkmaz, Ö. ve Karaca, S. S. (2013), “Firma Performansını Etkileyen Faktörler ve Türkiye Örneği”, Ege Akademik Bakış, Cilt. 13, Sayı. 2, ss. 169-179.
20. Levine, R. A. (1996), Stock Market Development and Long-Run Growth. World Bank Economic Review, 323-339.
21. Lewellen. J. (2002), “Predicting Returns with Financial Ratios”, Social Science Research Network Working Paper Series, No:4371-02.
22. Moderes, A,, Sajjad, A ve Mozhgan M. (2008), “Testing Linear Relationships Between Excess Rate of Return and Financial Ratios”, Social Science Research Network Working Paper Series, No:14.
23. Mukherji S., Manjeet S. D. & Yong H. K. (1997), “A Fundamental Analysis of Korean Stock Returns”, Financial Analysts Journal, vol. 53, no. 3, pp. 75-80.
24. Oh K.Y, Kim B ve Kim H. (2006), “An Empirical Study of Te Relation Between Stock Price and EPS in Panel Data: Korea Case”, Applied Economics, vol. 38, ss. 2361-2368.
25. Okafor, C.A., Mgbame, C.O ve Mgbame, A.M.C. (2011), “Dividend Policy and Share Price Volatility in Nigeria”, Jorind, vol. 9, no. 1, pp. 202-210.
26. Omran, M ve Ragab, A. (2004), “Linear Versus Non-Linear Relationships Between Financial Ratios and Stock Returns: Emprical Evidence From Egyptian Firms”, Review of Accounting and Finance, vol. 3, no. 2, pp. 84-102.
27. Şamiloğlu, F. (2005), “Hisse Getirileri ve Fiyatlarıyla, Kazanç ve Nakit Akımları Arasındaki İlişki: Deri ve Gıda Şirketlerinde Ampirik Bir İnceleme”, İstanbul Üniversitesi İşletme Fakültesi Dergisi, 26, ss. 120-126.
28. Tatoğlu, Y.F. (2013). İleri Panel Veri Analizi-Stata Uygulamalı (2. Baskı). İstanbul: Beta Basım Yayın Dağıtım A.Ş.