The Relationship between Earnings-to-Price, Current Ratio, Profit Margin and Return: An Empirical Analysis on Istanbul Stock Exchange

Hakkı Öztürk and Tolun A. Karabulut

Accounting and Finance Research, 2018, vol. 7, issue 1, 109

Abstract: This paper aims to investigate the relationship between current ratio, earnings to price, net profit margin and stock returns in Ä°stanbul Stock Exchange over the period 2008-2016 by employing panel data analysis. Due to the existence of heteroskedasticity, cross sectional dependence and autocorrelation in sample data, two-way fixed effects model is estimated by robust estimators. Both Parks-Kmenta and Beck-Katz methods are conducted to check whether the results are consistent or not. According to Park-Kmenta estimation model, the results show that earnings to price and net profit margin are significant to explain stock returns in Ä°stanbul Stock Exchange while current ratio is found insignificant. Â Moreover, the test based on Beck-Katz model produces the similar results. Earnings to price and net profit margin are strong determinants of stock returns in Istanbul Stock Exchange. Stocks with higher E/P ratios and profit margins generate higher returns for the next period.

Date: 2018
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