The Causality Relationship between Financial Market Indexes and Financial Ratios: Evidence from Amman Stock Exchange

Ghaith N. Al-Eitan () and Nofan Hamed Al Oleemat

International Journal of Academic Research in Accounting, Finance and Management Sciences, 2015, vol. 5, issue 2, 23-31

Abstract: This study examines the effect of financial ratios on financial indexes. For this purpose, the financial indexes of ASE are examined. In the study, the relation between financial indexes performance and financial ratios are analyzed by time series data. In the analysis 4 financial indexes between 2010 and 2014 have been analyzed. The dependent variable of the study is financial indexes; the independent variables are financial ratios. This study contributes to the body of knowledge by estimating the presence and nature of theses causal associations. The results of Granger causality test revealed that the financial ratios have causal relationship with the performance of ASE indexes. Based on the analysis, the results showed that financial ratios (P/E, P/BV and DIV/YIELD) significantly caused financial indexes performance. The Johansen Cointegration test shows long run relationship among the variables. Some policy implications and recommendations are drawn in the conclusion for policy makers.

Keywords: Amman Stock Exchange (ASE); Financial Ratios; Financial market indexes; Grange Causality; VECM (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:hur:ijaraf:v:5:y:2015:i:2:p:23-31

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