Predicting returns with financial ratios: Evidence from Indonesian Stock Exchange
The prediction of stock prices movement has always been a concern for investors when they make investment decisions. Most of stock markets all over the world provide data on price to earnings ra-tio (P/E) and price to book value ratio (P/B). How reliable these data are for investment is not clear-ly...
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| Format: | Article |
| Language: | English |
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Growing Science
2019-06-01
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| Series: | Management Science Letters |
| Subjects: | |
| Online Access: | http://www.growingscience.com/msl/Vol9/msl_2019_150.pdf |
| _version_ | 1818650227771441152 |
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| author | Yohanes Indrayono |
| author_facet | Yohanes Indrayono |
| author_sort | Yohanes Indrayono |
| collection | DOAJ |
| description | The prediction of stock prices movement has always been a concern for investors when they make investment decisions. Most of stock markets all over the world provide data on price to earnings ra-tio (P/E) and price to book value ratio (P/B). How reliable these data are for investment is not clear-ly known. This study examines how accounting data of P/E and P/B can predict the stock prices. The study selects data from 218 firms listed in Indonesian Stock Exchange as sample over the peri-od 2007-2016 and they are analyzed by multiple linear regression. The study shows that price to earnings ratio (P/E ratio) had no effect on stock prices for each year and also in all periods, but price to book value ratio (P/B ratio) had positive effect on stock prices, which means that the higher the P/B ratio, the more expensive the stock price. The decision of firm management is to maximize price to book value ratio (P/B ratio) which means to maximize the shareholders’ wealth. However, on the contrary, investors always seek the lower P/B ratio to get the desirable gains. Nevertheless, since the statistical analyses show there are many other variables affecting the stock prices movement, the investors should not rely only on P/B ratio for making investment decisions. |
| first_indexed | 2024-12-17T01:46:52Z |
| format | Article |
| id | doaj.art-0c4eb860a89749ba9ba9a0f14930655a |
| institution | Directory Open Access Journal |
| issn | 1923-9335 1923-9343 |
| language | English |
| last_indexed | 2024-12-17T01:46:52Z |
| publishDate | 2019-06-01 |
| publisher | Growing Science |
| record_format | Article |
| series | Management Science Letters |
| spelling | doaj.art-0c4eb860a89749ba9ba9a0f14930655a2022-12-21T22:08:09ZengGrowing ScienceManagement Science Letters1923-93351923-93432019-06-019111901190810.5267/j.msl.2019.6.003Predicting returns with financial ratios: Evidence from Indonesian Stock ExchangeYohanes IndrayonoThe prediction of stock prices movement has always been a concern for investors when they make investment decisions. Most of stock markets all over the world provide data on price to earnings ra-tio (P/E) and price to book value ratio (P/B). How reliable these data are for investment is not clear-ly known. This study examines how accounting data of P/E and P/B can predict the stock prices. The study selects data from 218 firms listed in Indonesian Stock Exchange as sample over the peri-od 2007-2016 and they are analyzed by multiple linear regression. The study shows that price to earnings ratio (P/E ratio) had no effect on stock prices for each year and also in all periods, but price to book value ratio (P/B ratio) had positive effect on stock prices, which means that the higher the P/B ratio, the more expensive the stock price. The decision of firm management is to maximize price to book value ratio (P/B ratio) which means to maximize the shareholders’ wealth. However, on the contrary, investors always seek the lower P/B ratio to get the desirable gains. Nevertheless, since the statistical analyses show there are many other variables affecting the stock prices movement, the investors should not rely only on P/B ratio for making investment decisions.http://www.growingscience.com/msl/Vol9/msl_2019_150.pdfPrice earnings ratio (PER)Price to book value ratio (PBV)Stock pricesDecision makingIndonesian Stock Exchange |
| spellingShingle | Yohanes Indrayono Predicting returns with financial ratios: Evidence from Indonesian Stock Exchange Management Science Letters Price earnings ratio (PER) Price to book value ratio (PBV) Stock prices Decision making Indonesian Stock Exchange |
| title | Predicting returns with financial ratios: Evidence from Indonesian Stock Exchange |
| title_full | Predicting returns with financial ratios: Evidence from Indonesian Stock Exchange |
| title_fullStr | Predicting returns with financial ratios: Evidence from Indonesian Stock Exchange |
| title_full_unstemmed | Predicting returns with financial ratios: Evidence from Indonesian Stock Exchange |
| title_short | Predicting returns with financial ratios: Evidence from Indonesian Stock Exchange |
| title_sort | predicting returns with financial ratios evidence from indonesian stock exchange |
| topic | Price earnings ratio (PER) Price to book value ratio (PBV) Stock prices Decision making Indonesian Stock Exchange |
| url | http://www.growingscience.com/msl/Vol9/msl_2019_150.pdf |
| work_keys_str_mv | AT yohanesindrayono predictingreturnswithfinancialratiosevidencefromindonesianstockexchange |