The predictability of market value ratios on firm's stock returns. evidence from Kenya

Abstract

his study investigated the ability of market value ratios to predict firm’s stock return. Theduration of the study was 10years from 2008 to 2017. The study undertook to establish whethermarket value ratios (share price ratio, dividend yield and earnings per share ratio) can predictfirm’s stock returns. Generalized least squares and panel data models were utilized in the study.Stock returns was used as the dependent variable whereas price earnings ratio (PER), earningsper share (EPS) and dividend yield proxy for market value ratios. The findings revealed that EPSis negatively related to share returns and it’s significant. The study also revealed that PER isnegatively related to share returns though not significant. Similarly, the study revealed thatdividend yield is not significant though positively related to share returns. We conclude thatearnings per share can be used by prospective investors on Nairobi securities exchange as one ofthe predictors of stock prices. The study recommends for future research to use the variablesutilized in this study plus other variables that were not used in this research to study thepredictability on stock returns in order to arrive at more robust results.