Value of financial ratios in predicting stock returns: a study on Borsa Istanbul (BIST)

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.

Ability of Accounting Data to Predict Stock Returns of Non-Financial Institutions in Turkey

“…There was a suggestion of temporary risk shift which was not captured in the model adopted in a study by Holthausen & Larcker, (1992) because, it was marked inappropriate and therefore suggested a further research using a different model. This is consistence with a research conducted by Yilmaz & Agirman, (2018), who also recommended a more probe into the predictability of stock return using accounting variables with different sample sizes and methods. A study conducted by Ahmad & Ahmad, (2013) found out that financial leverage has no great effect on information content use by decision makers but affects the stockholders' wealth, profitability and firm performance.…”

“…The financial markets play virtually the same functions today just like centuries ago. The only significant difference, the speed of the processes, the globalization of investment enterprises, the complexity of the agreements to satisfy the standards of the users' criteria, and the size of the market (Yilmaz & Agirman, 2018). Another notable development over time is the notion of attempting to estimate stock returns in order to obtain the maximum expected return with a reasonable degree of risk.…”

“…Another notable development over time is the notion of attempting to estimate stock returns in order to obtain the maximum expected return with a reasonable degree of risk. Predicting stock returns has therefore always been an emerging strategic field in the sciences of financial asset pricing or valuation (Yilmaz & Agirman, 2018).…”

“…Government policies, inflation, political situations are other macro-economic factors that affects the pricing decision of investors. The other related activities of the company such as ownership structure, quality of labour force, quality of management, dividend per share and book value are also great determinants that influences investors pricing decision (Yilmaz & Agirman, 2018).…”

Financial ratios and book value of shares for selected money transfer companies listed on the Iraq Stock Exchange

“…Adopting the model specified by Agirman and Yilmaz (2018), the link between financial ratios and stock returns can be stated in functional form as:…”