The Predictability of Market Value Ratios on Firm’s Stock Returns, Evidence from Kenya
##article.subject##:
Market value ratios, stock returns, Nairobi securities exchange, price earnings ratio, dividend yield ratio and earnings per share.
##article.abstract##
This study investigated the ability of market value ratios to predict firm’s stock return. The duration of the study was 10years from 2008 to 2017. The study undertook to establish whether market value ratios (share price ratio, dividend yield and earnings per share ratio) can predict firm’s stock returns. Generalized least squares and panel data models were utilized in the study. Stock returns was used as the dependent variable whereas price earnings ratio (PER), earnings per share (EPS) and dividend yield proxy for market value ratios. The findings revealed that EPS is negatively related to share returns and it’s significant. The study also revealed that PER is negatively related to share returns though not significant. Similarly, the study revealed that dividend yield is not significant though positively related to share returns. We conclude that earnings per share can be used by prospective investors on Nairobi securities exchange as one of the predictors of stock prices. The study recommends for future research to use the variables utilized in this study plus other variables that were not used in this research to study the predictability on stock returns in order to arrive at more robust results.
References
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Anwar, Y. (2019). The effect of return on equity, earning per share and price earnings ratio on stock prices. The Accounting Journal of Binaniaga, 4(01), 57-66.
Arslan, M., Zaman, R., & Phil, M. (2014). Impact of dividend yield and price earnings ratio on Stock returns: A study of non-financial listed firms of Pakistan. Research Journal of Finance and Accounting, 5(19), 68-74.
Asif, M., Arif, K., & Akbar, W. (2016). Impact of accounting information on share price: Empirical evidence from Pakistan stock exchange. International Finance and Banking, 3(1), 124-135.
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Aditya, A.T., & Asandimitra, N. (2019). Pengaruh Leverage, Likuiditas, Market to Book Value, Financial Distress, dan Firm Size terhadap Keputusan Hedging (Studi
Perusahaan Sektor Consumer Goods Industry Periode 2011-2016). Jurnal Ilmu Manajemen (JIM), 7(2), 334-343.
Ayuba, A.J., Balago, G.S., & Dagwom, D.Y. (2018). Effects of firm level attributes on stock returns in Nigeria. International Journal of Finance and Accounting, 7(4), 122-131.
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Borges, M.R. (2011). Random walk tests for the Lisbon stock market. Applied Economics, 43(5), 631-639.
Dergiades, T., Milas, C., & Panagiotidis, T. (2020). A mixed frequency approach for stock returns and valuation ratios. Economics Letters, 187, 108861.
Dutta, K.D., Saha, M., & Das, D.C. (2018). Determinants of P/E ratio: an empirical study on listed manufacturing companies in DSE. International Journal of Scientific and Research Publication, 8(4).
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Jasman, J., & Kasran, M. (2017). Profitability, Earnings per Share on Stock Return with Size as Moderation. Trikonomika, 16(2), 88-94.
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Khan, M.B., Gul, S., Rehman, S.U., Razzaq, N., & Kamran, A. (2012). Financial ratios and stock return predictability (Evidence from Pakistan). Research Journal of Finance and Accounting, 3(10), 1-6.
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Nurrachmi, R. (2018). Movements of Islamic Stock Indices in Selected OIC Countries. Al-Muzara'ah, 6(2), 77-90.
Pan, L., & Mishra, V. (2018). Stock market development and economic growth: Empirical evidence from China. Economic Modelling, 68, 661-673.
Putri, A.P., Hutagalung, J., Octavia, V., & Virginia, C. (2020). Analysis of Stock Market Returns: Study of Consumer Goods Companies Listed on the Indonesia Stock Exchange. Soshum: Jurnal Sosial dan Humaniora, 10(3), 321-333.
Rita Yi Man Li, Simon F. & Kyle Weng Sang Chong (2017) Forecasting the REITs and stock Indices: Group Method of Data Handling Neural Network approach, Pacific Rim Property Research Journal, 23:2, 123-160.
Rao, R.P., Aggarwal, R., & Hiraki, T. (1992). Dividend yields and stock returns: Evidence from the Tokyo Stock Exchange. Journal of Economics and Business, 44(3), 187-200.
Valtakoski, A., & Witell, L. (2018). Service capabilities and servitized SME performance: contingency on firm age. International Journal of Operations & Production Management.
Singgih, M., Pricilia, V.P., & Lavista, E. (2018). Market to book value, firm size, and the underpricing of Indonesian initial public offerings. Review of Management and Entrepreneurship, 2(2), 75-90.
Tobias, J.C.A.D.O., & Macharia, I. (2019). Influence of Earnings per Share on Idiosyncratic Volatility of Stock Returns among Listed Firms in Kenya.
Wijaya, J.A. (2015). The effect of financial ratios toward stock returns among Indonesian manufacturing companies. IBuss Management, 3(2).
Wijesundera, A.A.V.I., Weerasinghe, D.A.S., Krishna, T.P.C.R., Gunawardena, M.M.D., & Peiris, H.R.I. (2016). Predictability of stock returns using financial ratios: empirical evidence from Colombo stock exchange. Kelaniya Journal of Management, 4(2).
Yao, T., Yu, T., Zhang, T., & Chen, S. (2011). Asset growth and stock returns: Evidence from Asian financial markets. Pacific-Basin Finance Journal, 19(1), 115-139.
Zeytinoğlu, E., Akarim, Y.D., & Çelik, S. (2012). The impact of market-based ratios on stock returns: The evidence from insurance sector in Turkey. International Research Journal of Finance and Economics, 84, 41-48.
Allozi, N.M., & Obeidat, G.S. (2016). The relationship between the stock return and financial indicators (profitability, leverage): An empirical study on manufacturing companies listed in Amman Stock Exchange. Journal of Social Sciences (COES&RJ-JSS), 5(3), 408-424.
Anwaar, M. (2016). Impact of firm’s performance on stock returns (evidence from listed Companies of ftse-100 index London, UK). Global Journal of Management and Business Research.
Anwar, Y. (2019). The effect of return on equity, earning per share and price earnings ratio on stock prices. The Accounting Journal of Binaniaga, 4(01), 57-66.
Arslan, M., Zaman, R., & Phil, M. (2014). Impact of dividend yield and price earnings ratio on Stock returns: A study of non-financial listed firms of Pakistan. Research Journal of Finance and Accounting, 5(19), 68-74.
Asif, M., Arif, K., & Akbar, W. (2016). Impact of accounting information on share price: Empirical evidence from Pakistan stock exchange. International Finance and Banking, 3(1), 124-135.
Atidhira, A.T., & Yustina, A.I. (2017). The influence of return on asset, debt to equity ratio, earnings per share, and company size on share return in property and real estate companies. JAAF (Journal of Applied Accounting and Finance), 1(2), 128-146.
Aditya, A.T., & Asandimitra, N. (2019). Pengaruh Leverage, Likuiditas, Market to Book Value, Financial Distress, dan Firm Size terhadap Keputusan Hedging (Studi
Perusahaan Sektor Consumer Goods Industry Periode 2011-2016). Jurnal Ilmu Manajemen (JIM), 7(2), 334-343.
Ayuba, A.J., Balago, G.S., & Dagwom, D.Y. (2018). Effects of firm level attributes on stock returns in Nigeria. International Journal of Finance and Accounting, 7(4), 122-131.
Bouteska, A., & Regaieg, B. (2017). The Association between Accounting Earnings, Dividends, Stock Prices and Stock Returns: Value Relevance of Accounting Standards in the Tunisian Stock Market. International Journal of Accounting and Financial Reporting, 7(1), 171-189.
Borges, M.R. (2011). Random walk tests for the Lisbon stock market. Applied Economics, 43(5), 631-639.
Dergiades, T., Milas, C., & Panagiotidis, T. (2020). A mixed frequency approach for stock returns and valuation ratios. Economics Letters, 187, 108861.
Dutta, K.D., Saha, M., & Das, D.C. (2018). Determinants of P/E ratio: an empirical study on listed manufacturing companies in DSE. International Journal of Scientific and Research Publication, 8(4).
Dwi, S.I.S. (2019). Analysis of the effect of return on assets, earnings per share, inflation rate, and interest rate on stock return: a case study of SOE banking companies listed in Indonesia stock exchange. Russian Journal of Agricultural and Socio-Economic Sciences, 85(1).
Güloğlu, B., Kangallı Uyar, S.G., & Uyar, U. (2016). Dynamic quantile panel data analysis of stock returns predictability.
Hatem, B.S. (2017). How Can We Measure Stock Market Returns? An International Comparison. International Business Research, 10, 121-126.
Jasman, J., & Kasran, M. (2017). Profitability, Earnings per Share on Stock Return with Size as Moderation. Trikonomika, 16(2), 88-94.
Kasmiati, M., & Santosa, P.W. (2019). The effect of earning information, cash flow componens, firnancing decision, and Stock Return: Empirical Evidence on Indonesia stock exchange. Journal of Economics, Business & Accountancy Ventura, 22(2), 157-166.
Khan, M.B., Gul, S., Rehman, S.U., Razzaq, N., & Kamran, A. (2012). Financial ratios and stock return predictability (Evidence from Pakistan). Research Journal of Finance and Accounting, 3(10), 1-6.
Kheradyar, S., Ibrahim, I., & Nor, F.M. (2011). Stock return predictability with financial ratios. International Journal of Trade, Economics and Finance, 2(5), 391
Kumar, P. (2017). Impact of earning per share and price earnings ratio on market price of share: a study on auto sector in India. International Journal of Research-Granthaalayah, 5(2), 113-118.
Kwai-yee, L.P.F.B.C. (2016). Relationships between stock returns and corporate financial ratios based on a statistical analysis of corporate data from the Hong Kong Stock Market. Public Finance Quarterly, 1, 111.
Musallam, S.R. (2018). Exploring the relationship between financial ratios and market stock returns. Eurasian Journal of Business and Economics, 11(21), 101-116.
Martina, S. (2019). The effect of quick ratio, debt to equity ratio, earning per share, price to book value and return on equity on stock return with money supply as moderated variables (Study of Banking Companies Listed on Indonesia Stock Exchange Period 2008-2017). International Journal of Public Budgeting, Accounting and Finance, 2(3), 1-10.
Muhammad, S., & Ali, G. (2018). The relationship between fundamental analysis and stock returns based on the panel data analysis; evidence from Karachi stock exchange (KSE). Research Journal of Finance and Accounting, 9(3), 84-96.
Nurrachmi, R. (2018). Movements of Islamic Stock Indices in Selected OIC Countries. Al-Muzara'ah, 6(2), 77-90.
Pan, L., & Mishra, V. (2018). Stock market development and economic growth: Empirical evidence from China. Economic Modelling, 68, 661-673.
Putri, A.P., Hutagalung, J., Octavia, V., & Virginia, C. (2020). Analysis of Stock Market Returns: Study of Consumer Goods Companies Listed on the Indonesia Stock Exchange. Soshum: Jurnal Sosial dan Humaniora, 10(3), 321-333.
Rita Yi Man Li, Simon F. & Kyle Weng Sang Chong (2017) Forecasting the REITs and stock Indices: Group Method of Data Handling Neural Network approach, Pacific Rim Property Research Journal, 23:2, 123-160.
Rao, R.P., Aggarwal, R., & Hiraki, T. (1992). Dividend yields and stock returns: Evidence from the Tokyo Stock Exchange. Journal of Economics and Business, 44(3), 187-200.
Valtakoski, A., & Witell, L. (2018). Service capabilities and servitized SME performance: contingency on firm age. International Journal of Operations & Production Management.
Singgih, M., Pricilia, V.P., & Lavista, E. (2018). Market to book value, firm size, and the underpricing of Indonesian initial public offerings. Review of Management and Entrepreneurship, 2(2), 75-90.
Tobias, J.C.A.D.O., & Macharia, I. (2019). Influence of Earnings per Share on Idiosyncratic Volatility of Stock Returns among Listed Firms in Kenya.
Wijaya, J.A. (2015). The effect of financial ratios toward stock returns among Indonesian manufacturing companies. IBuss Management, 3(2).
Wijesundera, A.A.V.I., Weerasinghe, D.A.S., Krishna, T.P.C.R., Gunawardena, M.M.D., & Peiris, H.R.I. (2016). Predictability of stock returns using financial ratios: empirical evidence from Colombo stock exchange. Kelaniya Journal of Management, 4(2).
Yao, T., Yu, T., Zhang, T., & Chen, S. (2011). Asset growth and stock returns: Evidence from Asian financial markets. Pacific-Basin Finance Journal, 19(1), 115-139.
Zeytinoğlu, E., Akarim, Y.D., & Çelik, S. (2012). The impact of market-based ratios on stock returns: The evidence from insurance sector in Turkey. International Research Journal of Finance and Economics, 84, 41-48.
##submissions.published##
2021-10-24
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