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

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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