Financial ratios to predict the stock returns of trading and services public listed company in Malaysia

• Main Author: Nursyamimi Huda, Binti Bohari
• Format: Final Year Project Report
• Language: English
• Published: Universiti Malaysia Sarawak, (UNIMAS) 2012
• Subjects: HB Economic Theory
• Online Access: http://ir.unimas.my/id/eprint/9065/2/Nursyamimi%20Huda%20Binti%20Bohari.pdf; http://ir.unimas.my/id/eprint/9065/

This research was carried out to study whether the financial ratios can predict the stock return of trading and services public listed company in Malaysia for the period from January 2001 to December 2010. Three financial ratios have been selected which include dividend yield (DY), earning yield (EY), and book to market ratios (BIM) that have been documented to predict stock returns. This study applies fixed effect model techniques to estimate the predictive regressions in the form of simple and multiple models ofpanel data sets. From the findings, the financial ratios can predict stock return as book to market ratio has a higher predictive power than dividend yield and earning yield respectively. Hence, book to market ratio playa significant role in capturing strong variation in stock returns. Furthermore, financial ratios are able to develop stock return predictability when the ratios are combined in the mUltiple predictive regression models. For future study, it is recommended to use more than 10 years and adding more variables to get a more reliable data and strong results.