Articlediamond2016

Predictability of stock returns using financial ratios: empirical evidence from Colombo stock exchange

A. A. V. I. Wijesundera · D. A. S. Weerasinghe · T. P. C. R. Krishna · Medhisha Gunawardena · H. Rangika Iroshani Peiris

19 citations0/0 files storedKelaniya Journal of Management

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Financial Markets and Investment Strategies Financial Analysis and Corporate Governance Financial Reporting and Valuation Research

Abstract

The purpose of this research is to examine the ability of the historical financial information in constructing a resilient value portfolio for investors by predicting stock returns in the Sri Lankan context. One of the most imperative and interesting phenomena for the investors and the analysts would be the stock returns from the financial markets. The present study will aim at mainly to assess correlation between financial ratios and the predictability of stock returns for companies listed on the Colombo Stock Exchange. This study applies ordinary least squares (OLS) techniques to estimate the predictive regressions in form of simple and multiple models of panel data sets. For the current study, 60 listed companies were selected and 10 years of data has been analyzed from 2004 to 2013. The results highlighted that ROE, EPS and MV/BV have a significant positive relationship with the stock return which is followed by a simple equation to predict the future stock returns. Hence the investors should consider these ratios of the companies and movement in these ratios in selecting a resilient portfolio to invest.

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References

2022Business Research Methods 2001Stock Return Predictability: Is it There?2007Reconciling the Return Predictability Evidence 2011Stock return predictability and the adaptive markets hypothesis: Evidence from century-long U.S. data 2015Dividend Yields, Dividend Growth, and Return Predictability in the Cross Section of Stocks 2012Impact of Selected Financial Variables on Share Price of Publicly Listed Firms in the Philippines 2011Stock Return Predictability with Financial Ratios 2010Predictability of stock returns using financial statement information: evidence on semi-strong efficiency of emerging Greek stock market

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