Predictability of Stock Returns using Financial Ratios: Evidence from Pakistan Stock Exchange

Authors

  • Ume Salma Akbar Assistant Professor Department of Business Administration Sukkur IBA University; Sukkur, Pakistan
  • Niaz Ahmed Bhutto Professor Department of Business Administration Sukkur IBA University, Sukkur Sindh, Pakistan

Keywords:

Dividend yield, Price to earnings, Book-to-Market ratio, Stock return, Predictability, JEL Classification: G14, JEL Classification: G15, JEL Classification: G17, Pakistan Stock Exchange

Abstract

This study attempts to investigate financial ratios’ predictive power, using the time series data over the period of 2008-2015 for 84 listed companies covering 29 sectors in the Pakistan Stock Exchange (PSX). By selecting three different financial ratios: dividend yield (DY), price to earnings (P/E), and book-to-market ratio (B/M). The generalized least squares (GLS) technique is applied in the form of multiple linear regression models to test the relationship among all proposed variables. The results show that the three ratios hold a somewhat predictive power regarding stock returns in the Pakistan Stock Exchange. Where (DY) is significant for 26 firms, (P/E) is significant for 20 firms, and (B/M) is significant for 36 firms out of 84 listed companies.

JEL Classification: G14, G15, G17

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Published

2023-09-30

How to Cite

Ume Salma Akbar, & Niaz Ahmed Bhutto. (2023). Predictability of Stock Returns using Financial Ratios: Evidence from Pakistan Stock Exchange. Pakistan Research Journal of Social Sciences, 2(3). Retrieved from https://prjss.com/index.php/prjss/article/view/12

Issue

Vol. 2 No. 3 (2023): July-September

Section

Articles