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Year 2018, Volume: 7 Issue: 2, 191 - 199, 17.07.2018

Ensar Agirman , Omer Yilmaz

https://doi.org/10.17261/Pressacademia.2018.847

Abstract

References

  • Aharoni, G., Grundy, B. & Zeng, Q. (2013). Stock returns and the Miller Modigliani valuation formula: revisiting the Fama French analysis. Journal of Financial Economics, 110, 347–357.
  • Akdeniz, L., Salih, A. A. & Ok, S. T. (2007). Are stock prices too volatile to be justified by the dividend discount model? Physica A, 376, 433-444.
  • Al-Hares, O. M., AbuGhazaleh, N. M. & Haddad, A. E. (2012). Value relevance of earnings, book value and dividends in an emerging capital market: Kuwait evidence. Global Finance Journal, 23, 221–234.
  • Ali, A., Hwang, L. S. & Trombley, M. A. (2003). Arbitrage risk and the book-to-market anomaly. Journal of Financial Economics, 69, 355–373.
  • Ang, A. & Liu, J. (2007). Risk, return, and dividends. Journal of Financial Economics, 85, 1–38.
  • Apergis, N. & Payne, J. E. (2014). Resurrecting the size effect: evidence from a panel nonlinear cointegration model for the G7 stock markets. Review of Financial Economics, 23, 46–53.
  • Brooks, C. (2008). Introductory econometrics for finance. 2nd ed. UK: Cambridge University Press.
  • Brunnermeier, M. K. (2001). Asset pricing under asymmetric information. Oxford University Press.
  • Bulkley, G., Harris, R. D. & Herrerias, R. (2004). Why does book-to-market value of equity forecast cross-section stock returns? International Review of Financial Analysis, 13, 153– 160.
  • Chao, S. (2008). Stock market returns predictability: does volatility matter?. QMSS Master Thesis, Columbia University.
  • Charemza, W. W. & Deadman, D. F. (1993). New directions in econometric practice. UK: Edward Elgar Publishing.
  • Chen, C. & Wu, C. (1999). The dynamics of dividends, earnings and prices: evidence and implications for dividend smoothing and signaling. Journal of Empirical Finance, 6, 29–58.
  • Chen, H. (2011). Firm life expectancy and the heterogeneity of the book-to-market effect. Journal of Financial Economics, 100, 402–423.
  • Chui, A. C. & Wei, K. J. (1998). Book-to-market, firm size, and the turn-of-the-year effect: evidence from Pacific-Basin emerging markets. Pacific-Basin Finance Journal, 6, 275–293.
  • Collins, J. (1957). How to study the behavior of bank stocks. The Analysts Journal, 13(2), 109-113.
  • Çınar, S. (2010). OECD ülkelerinde kişi başına GSYİH durağan mı? Panel veri analizi. Marmara Üniversitesi İİBF Dergisi. Cilt: 29, Sayı: 2, 591-601.
  • David, L. (2002). Understanding the markets, Butterworth-Heinemann.
  • Dunne, P. G. (1999). Size and book-to-market factors in a multivariate GARCH-in-mean asset pricing application. International Review of Financial Analysis, 8 (1), 35-52.
  • Eun, C. S. & Lee, J. (2010). Evolution of earnings-to-price ratios: international evidence. Global Finance Journal, 21, 125–137.
  • Gill, A., Biger, N. & Mathur, N. (2012). Determinants of equity share prices: evidence from American firms. International Research Journal of Finance and Economics, 90, 176- 191.
  • Granger, C. W. J. (1964). Spectral analysis of economic time series. New Jersey: Princeton University Press.
  • Granger, C. W. J. (1969). Investigating causal relations by econometric models and cross-spectral methods. Econometrica, 37(3), 424-438.
  • Hamilton, J. D. (1994). Time series analysis. New Jersey: Princeton University Press.
  • Hausman, J. A. & Taylor, W. E. (1981). Panel data and unobservable individual effects. Econometrica, 49(6), 1377-1398.
  • Ho, R. Y.-w., Strange, R. & Piesse, J. (2006). On the conditional pricing effects of beta, size, and book-to-market equity in the Hong Kong market. Int. Fin. Markets, Inst. and Money, 16, 199–214.
  • Huang, C. S., You, C. F. & Lin, S. H. (2009). Cash dividends, stock dividends and subsequent earnings growth. Pacific-Basin Finance Journal, 17, 594–610.
  • Hung, W., Chiao, C., Liao, T. L. & Huang, S. T. (2012). R&D, risks and overreaction in a market with the absence of the book-to-market effect. International Review of Economics and Finance, 22, 11–24.
  • Jiang, H. (2010). Institutional investors, intangible information, and the book-to-market effect. Journal of Financial Economics, 96, 98–126.
  • Judge, G. G. (1985). The theory and practice of econometrics. 2nd ed. USA: Wiley.
  • Jiang, X. & Lee, B. S. (2007). Stock returns, dividend yield, and book-to-market ratio. Journal of Banking & Finance, 31, 455–475.
  • Kaya, V. & Yılmaz, Ö. (2006). Bölgesel enflasyon bölgesel büyüme ilişkisi: Türkiye İçin zaman serisi ve panel veri analizleri. İktisat İşletme ve Finans, 21(247), 62-78.
  • Kendall, M. (1953). The analysis of economic time series, part I: prices. Journal of the Royal Statistical Society, 96, 11–25. Kutlar, A. (2007). Ekonometriye giriş. 1. Baskı. Ankara: Nobel Yayınları.
  • Lam, K. S. (2002). The relationship between size, book-to-market equity ratio, earnings–price ratio, and return for the Hong Kong stock market. Global Finance Journal, 13, 163–179.
  • Lee, B. S. (1996). Comovements of earnings, dividends, and stock prices. Journal of Empirical Finance, 3, 327-346.
  • Leea, S. C. & Linb, C. T. (2012). Book-to-market equity, operating risk, and asset correlations: Implications for Basel capital requirement. Int. Fin. Markets, Inst. and Money, 22, 973– 989.
  • Lettau, M., & Ludvigson, S. C. (2005). Expected returns and expected dividend growth. Journal of Financial Economics, 76, 583–626.
  • Lewellen, J. (2004). Predicting returns with financial ratios. Journal of Financial Economics, 74, 209–235.
  • Lewellen, J. (1999). The time-series relations among expected return, risk, and book-to-market. Journal of Financial Economics, 54, 5-43.
  • Midani, A. (1991). Determinants of Kuwaiti stock prices: an empirical investigation of industrial services, and food company shares. Retrieved June 12, 2014 from http://qspace.qu.edu.qa/bitstream/handle/10576/6908/049102-0008-fulltext.pdf?sequence=3
  • Morelli, D. (2007). Beta, size, book-to-market equity and returns: a study based on UK data. J. of Multi. Fin. Manag, 17, 257–272.
  • Musumeci, J. & Peterson, M. (2011). BE/ME and E/P work better than ME/BE or P/E in regressions. Journal of Corporate Finance, 17, 1272–1288.
  • Nagayasu, J. (2007). Putting the dividend–price ratio under the microscope. Finance Research Letters, 4, 186–195.
  • Nirmala, P.S., Sanju, P.S. & Ramachandran, M. ( 2011). Determinants of share prices in India. Journal of Emerging Trends in Economics and Management Sciences, 2(2), 124-130.
  • Pazarlıoğlu, M. V. & Gürler, Ö. K. (2007). Telekomünikasyon yatırımları ve ekonomik büyüme: panel veri yaklaşımı. Finans Politik & Ekonomik Yorumlar, 44(508), 35-43.
  • Pontiff, J. & Schall, L. D. (1998). Book-to-market ratios as predictors of market returns. Journal of Financial Economics, 49, 141-160.
  • Razuk, F. G. (2001). An assessment of financial ratios as predictors of casino stocks’ behavior, Master’s Thesis, Graduate College University of Nevada, Las Vegas May 2001.
  • Simon, W. E. (1997). Book-to-market, dividend yield, and expected market returns: a time-series analysis. Journal of Financial Economics, 44, 169-203.
  • Skinner, D. J. (2008). The evolving relation between earnings, dividends and stock repurchases. Journal of Financial Economics, 87, 582–609.
  • Uddin, R., Rahman, Z. & Hossain, R. (2013). Determinants of stock prices in financial sector companies in Bangladesh- a study on Dhaka stock exchange (DSE).
  • Ünalmış, D. (2002). The causality between financial development and economic growth: the case of Turkey. The Central Bank of the Republic of Turkey, Research Department Working Paper, No: 3, pp: 1–11.
  • Wang, X. (2000). Size effect, book-to-market effect, and survival. Journal of Multinational Financial Management, 10, 257–273.
  • Wooldridge, J. M. (2009). Introductory econometrics: a modern approach. 4th ed. USA: Cengage Learning.

VALUE OF FINANCIAL RATIOS IN PREDICTING STOCK RETUNS: A STUDY ON BORSA ISTANBUL (BIST)

Year 2018, Volume: 7 Issue: 2, 191 - 199, 17.07.2018

Ensar Agirman , Omer Yilmaz

https://doi.org/10.17261/Pressacademia.2018.847

Abstract

Purpose- This paper investigates whether financial ratios can predict stock returns for the period between from 2004: II and 2014: IV in the Borsa Istanbul (BIST). For this purpose, four financial raitos have been used that include price to book ratio (P/B), price to earning ratio (P/E), dividend per share (DPS) and firm sizes are selected.
Methodology- This study applies panel data analysis which is an important predictive regression tools for predicting stock returns.
Findings- The results disclose that the financial ratios can predict stock return.
Conclusion- From financial ratios, firm size has a higher predictive power than dividend per share and price to book ratio respectively. However, there is no significant relationship between price to earning ratio and for stock returns.

Keywords

Financial ratios stock returns panel data models BIST

References

  • Aharoni, G., Grundy, B. & Zeng, Q. (2013). Stock returns and the Miller Modigliani valuation formula: revisiting the Fama French analysis. Journal of Financial Economics, 110, 347–357.
  • Akdeniz, L., Salih, A. A. & Ok, S. T. (2007). Are stock prices too volatile to be justified by the dividend discount model? Physica A, 376, 433-444.
  • Al-Hares, O. M., AbuGhazaleh, N. M. & Haddad, A. E. (2012). Value relevance of earnings, book value and dividends in an emerging capital market: Kuwait evidence. Global Finance Journal, 23, 221–234.
  • Ali, A., Hwang, L. S. & Trombley, M. A. (2003). Arbitrage risk and the book-to-market anomaly. Journal of Financial Economics, 69, 355–373.
  • Ang, A. & Liu, J. (2007). Risk, return, and dividends. Journal of Financial Economics, 85, 1–38.
  • Apergis, N. & Payne, J. E. (2014). Resurrecting the size effect: evidence from a panel nonlinear cointegration model for the G7 stock markets. Review of Financial Economics, 23, 46–53.
  • Brooks, C. (2008). Introductory econometrics for finance. 2nd ed. UK: Cambridge University Press.
  • Brunnermeier, M. K. (2001). Asset pricing under asymmetric information. Oxford University Press.
  • Bulkley, G., Harris, R. D. & Herrerias, R. (2004). Why does book-to-market value of equity forecast cross-section stock returns? International Review of Financial Analysis, 13, 153– 160.
  • Chao, S. (2008). Stock market returns predictability: does volatility matter?. QMSS Master Thesis, Columbia University.
  • Charemza, W. W. & Deadman, D. F. (1993). New directions in econometric practice. UK: Edward Elgar Publishing.
  • Chen, C. & Wu, C. (1999). The dynamics of dividends, earnings and prices: evidence and implications for dividend smoothing and signaling. Journal of Empirical Finance, 6, 29–58.
  • Chen, H. (2011). Firm life expectancy and the heterogeneity of the book-to-market effect. Journal of Financial Economics, 100, 402–423.
  • Chui, A. C. & Wei, K. J. (1998). Book-to-market, firm size, and the turn-of-the-year effect: evidence from Pacific-Basin emerging markets. Pacific-Basin Finance Journal, 6, 275–293.
  • Collins, J. (1957). How to study the behavior of bank stocks. The Analysts Journal, 13(2), 109-113.
  • Çınar, S. (2010). OECD ülkelerinde kişi başına GSYİH durağan mı? Panel veri analizi. Marmara Üniversitesi İİBF Dergisi. Cilt: 29, Sayı: 2, 591-601.
  • David, L. (2002). Understanding the markets, Butterworth-Heinemann.
  • Dunne, P. G. (1999). Size and book-to-market factors in a multivariate GARCH-in-mean asset pricing application. International Review of Financial Analysis, 8 (1), 35-52.
  • Eun, C. S. & Lee, J. (2010). Evolution of earnings-to-price ratios: international evidence. Global Finance Journal, 21, 125–137.
  • Gill, A., Biger, N. & Mathur, N. (2012). Determinants of equity share prices: evidence from American firms. International Research Journal of Finance and Economics, 90, 176- 191.
  • Granger, C. W. J. (1964). Spectral analysis of economic time series. New Jersey: Princeton University Press.
  • Granger, C. W. J. (1969). Investigating causal relations by econometric models and cross-spectral methods. Econometrica, 37(3), 424-438.
  • Hamilton, J. D. (1994). Time series analysis. New Jersey: Princeton University Press.
  • Hausman, J. A. & Taylor, W. E. (1981). Panel data and unobservable individual effects. Econometrica, 49(6), 1377-1398.
  • Ho, R. Y.-w., Strange, R. & Piesse, J. (2006). On the conditional pricing effects of beta, size, and book-to-market equity in the Hong Kong market. Int. Fin. Markets, Inst. and Money, 16, 199–214.
  • Huang, C. S., You, C. F. & Lin, S. H. (2009). Cash dividends, stock dividends and subsequent earnings growth. Pacific-Basin Finance Journal, 17, 594–610.
  • Hung, W., Chiao, C., Liao, T. L. & Huang, S. T. (2012). R&D, risks and overreaction in a market with the absence of the book-to-market effect. International Review of Economics and Finance, 22, 11–24.
  • Jiang, H. (2010). Institutional investors, intangible information, and the book-to-market effect. Journal of Financial Economics, 96, 98–126.
  • Judge, G. G. (1985). The theory and practice of econometrics. 2nd ed. USA: Wiley.
  • Jiang, X. & Lee, B. S. (2007). Stock returns, dividend yield, and book-to-market ratio. Journal of Banking & Finance, 31, 455–475.
  • Kaya, V. & Yılmaz, Ö. (2006). Bölgesel enflasyon bölgesel büyüme ilişkisi: Türkiye İçin zaman serisi ve panel veri analizleri. İktisat İşletme ve Finans, 21(247), 62-78.
  • Kendall, M. (1953). The analysis of economic time series, part I: prices. Journal of the Royal Statistical Society, 96, 11–25. Kutlar, A. (2007). Ekonometriye giriş. 1. Baskı. Ankara: Nobel Yayınları.
  • Lam, K. S. (2002). The relationship between size, book-to-market equity ratio, earnings–price ratio, and return for the Hong Kong stock market. Global Finance Journal, 13, 163–179.
  • Lee, B. S. (1996). Comovements of earnings, dividends, and stock prices. Journal of Empirical Finance, 3, 327-346.
  • Leea, S. C. & Linb, C. T. (2012). Book-to-market equity, operating risk, and asset correlations: Implications for Basel capital requirement. Int. Fin. Markets, Inst. and Money, 22, 973– 989.
  • Lettau, M., & Ludvigson, S. C. (2005). Expected returns and expected dividend growth. Journal of Financial Economics, 76, 583–626.
  • Lewellen, J. (2004). Predicting returns with financial ratios. Journal of Financial Economics, 74, 209–235.
  • Lewellen, J. (1999). The time-series relations among expected return, risk, and book-to-market. Journal of Financial Economics, 54, 5-43.
  • Midani, A. (1991). Determinants of Kuwaiti stock prices: an empirical investigation of industrial services, and food company shares. Retrieved June 12, 2014 from http://qspace.qu.edu.qa/bitstream/handle/10576/6908/049102-0008-fulltext.pdf?sequence=3
  • Morelli, D. (2007). Beta, size, book-to-market equity and returns: a study based on UK data. J. of Multi. Fin. Manag, 17, 257–272.
  • Musumeci, J. & Peterson, M. (2011). BE/ME and E/P work better than ME/BE or P/E in regressions. Journal of Corporate Finance, 17, 1272–1288.
  • Nagayasu, J. (2007). Putting the dividend–price ratio under the microscope. Finance Research Letters, 4, 186–195.
  • Nirmala, P.S., Sanju, P.S. & Ramachandran, M. ( 2011). Determinants of share prices in India. Journal of Emerging Trends in Economics and Management Sciences, 2(2), 124-130.
  • Pazarlıoğlu, M. V. & Gürler, Ö. K. (2007). Telekomünikasyon yatırımları ve ekonomik büyüme: panel veri yaklaşımı. Finans Politik & Ekonomik Yorumlar, 44(508), 35-43.
  • Pontiff, J. & Schall, L. D. (1998). Book-to-market ratios as predictors of market returns. Journal of Financial Economics, 49, 141-160.
  • Razuk, F. G. (2001). An assessment of financial ratios as predictors of casino stocks’ behavior, Master’s Thesis, Graduate College University of Nevada, Las Vegas May 2001.
  • Simon, W. E. (1997). Book-to-market, dividend yield, and expected market returns: a time-series analysis. Journal of Financial Economics, 44, 169-203.
  • Skinner, D. J. (2008). The evolving relation between earnings, dividends and stock repurchases. Journal of Financial Economics, 87, 582–609.
  • Uddin, R., Rahman, Z. & Hossain, R. (2013). Determinants of stock prices in financial sector companies in Bangladesh- a study on Dhaka stock exchange (DSE).
  • Ünalmış, D. (2002). The causality between financial development and economic growth: the case of Turkey. The Central Bank of the Republic of Turkey, Research Department Working Paper, No: 3, pp: 1–11.
  • Wang, X. (2000). Size effect, book-to-market effect, and survival. Journal of Multinational Financial Management, 10, 257–273.
  • Wooldridge, J. M. (2009). Introductory econometrics: a modern approach. 4th ed. USA: Cengage Learning.
There are 52 citations in total.

Details

Primary Language English
Journal Section Articles
Authors

Ensar Agirman 0000-0001-5168-7023

Omer Yilmaz 0000-0002-2951-8749

Publication Date July 17, 2018
Published in Issue Year 2018 Volume: 7 Issue: 2

Cite

APA Agirman, E., & Yilmaz, O. (2018). VALUE OF FINANCIAL RATIOS IN PREDICTING STOCK RETUNS: A STUDY ON BORSA ISTANBUL (BIST). Journal of Business Economics and Finance, 7(2), 191-199. https://doi.org/10.17261/Pressacademia.2018.847

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