Khan, Muhammad Irfan (2009): Price Earning Ratio and Market to Book Ratio. Published in: IUB Journal of Social Sciences and Humanities , Vol. 7, No. 2 (2009): pp. 103-112.
Download (96kB) | Preview
This paper studies the effects of P/E ratio and M/B ratio on stock return of listed firms with Karachi Stock Exchange in the Textile sector of Pakistan. A total of 30 major firms out of 162 in the textile sector listed with the Karachi Stock Exchange for the period of 2001-2006 were selected on the basis of their size in terms of total assets. Firms which have larger size in terms of total assets among 162 firms were selected in this paper. The study reveals that the firms in an exclusive sector exhibit unique attributes that are sector specific and cannot be applied to or judged by combined analysis of the industry. The result shows that coefficients of independent variables are statistically insignificant. This means that stock return is not depending on any of the two independent variables. Besides insignificant coefficients, coefficients of determination are also very low in each case. This means that a very low percentage of change in stock return is explained by these two variables. The data was analyzed by running linear regression. Two independent variables i.e. P/E ratio and M/B ratio were selected to see their effects on stock return. Multiple regression models along with a measure of correlation were used to study the effect of the independent variables on the dependent variable. The results for the study revealed that stock return is independent of the two independent variables studied in this paper.
|Item Type:||MPRA Paper|
|Original Title:||Price Earning Ratio and Market to Book Ratio|
|English Title:||Price Earning Ratio and Market to Book Ratio|
|Keywords:||P/E Ratio, M/B Ratio, Stock Return, Fundamental Analysis|
|Subjects:||G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice ; Investment Decisions
G - Financial Economics > G3 - Corporate Finance and Governance > G35 - Payout Policy
|Depositing User:||MUHAMMAD IRFAN KHAN KHAN|
|Date Deposited:||21. Jul 2010 10:25|
|Last Modified:||22. Feb 2013 20:28|
Banz, R. W. (1981) The relationship between return and market value of common stocks. Journal of Financial Economics, 9:3-18.
Basu, S. (1977) Investment performance of common stocks in relation to their pirce-earings ratio: A test of the efficient market hypothesis. Journal of Finance, 32: 663-682.
Black, F. (1972) Capital market equilibrium with restricted borrowing. Journal of Business, 45:444 - 455.
Breen, W. (1968) Low Price-Earning Ratios and Industry Relatives. Financial Analyst Journal, 24:125 - 127.
Capaul et al. (1993) International value and growth stock returns. Financial Analysts Journal, 49:27 - 36.
David A. Goodman, and John W. Peavy (1983) Industry Relative Price-Earnings Ratios as Indicators of Investment Returns. Financial Analysts Journal, 39(4):60-66.
DeBondt, W. F. M., and R.H. Thaler. (1985). Does the stock market overract. Journal of Finance, 40:793-805.
Donald B. Keim. (1990) A New Look at the Effects of Firm Size and E/P Ratio on Stock Returns. Financial Analysts Journal, 46(2):56-67.
Fama, E. F. and K.R. French (1992) The cross-section of expected stock returns. Journal of Finance, 47:427-465. Fritzmeier, L. H. (1936) Relative Price Fluctuations of Industrial Stocks in Different Price Groups. Journal of Business, 9:133-154.
Heins, A. J., and S. L. Allison (1966) Some factors Affecting Stock Price Variability. Journal of Business,39:19-23.
Jagadeesh N. (1990) Evidence of predictable behavior of security returns. Journal of Finance, 45:881-898.
Jagadeesh, N., and S. Titman (1993) Returns to buying winners and selling losers: Implications for stock market efficiency. Journal of Finance, 48:65-92.
Kothari et al. (1995) Another look at the cross-section of expected stock returns. Journal of Finance, 50:185-224.
Linter, J. (1965) The valuation of risk assets and the selection of risky investments in stock portfolis and capital budgets. Review of Econimics and Statistics, 47:13-37.
McWilliams, J. D. (1966) Price, Earning and P-E Ratios. Financial Analyst Journal, 22:137-142. Pinches, G. E., and G. M. Simon (1972) An Analysis of Portfolio Accumulation Strategies Employing Low-Priced Common Stocks. Jounal of Financial and Quantitative Analysis, 7:1773-1796.
Rozeff, M. S., and W.R. Kinney (1976) Capital market seasonality: The case of stock returns. Journal of Financial Economics, 3:379-402.
Stattman D. (1980) Book values and expected stock returns. Doctoral dissertation, University of Chicago.
Sharp, W. F. (1964) Capital asset prices: A theory of market equilibrium under conditions of risk. Journal of Finance, 19:425-442.
Rosernberg et al. (1985) Persuasive evidence of market inefficiency. Journal of Portfolio Management, 11:9-17.