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The financial ratio usage towards predicting stock returns in Malaysia

Author

Listed:
  • Mohamad Jais
  • Shaharudin Jakpar
  • Tan Kia Puai Doris
  • Junaid M. Shaikh

Abstract

This paper examines whether a simple fundamental analysis strategy based on historical accounting information can predict stock returns. Construction and material sector are chosen in this study. Five common stock return predictor used in this study are price earning (PE), return of equity (ROE), debt to equity (DE), earning growth (EG) and price to net tangible asset (P/NTA). The results show that historical accounting signals are able to predict stock return. The mature group firm outperformed new and stable firm in predictive power. The finding reveals that nearly all return predictor have positive correlation with future stock return. Despite the down activity of the market over the sample period chosen, results reveal that fundamental accounting signals of winner portfolio that provide positive future return from a loser one generating a negative return still be able to generate positive return.

Suggested Citation

  • Mohamad Jais & Shaharudin Jakpar & Tan Kia Puai Doris & Junaid M. Shaikh, 2012. "The financial ratio usage towards predicting stock returns in Malaysia," International Journal of Managerial and Financial Accounting, Inderscience Enterprises Ltd, vol. 4(4), pages 377-401.
    • Handle: RePEc:ids:injmfa:v:4:y:2012:i:4:p:377-401
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    Cited by:

    1. Naz Farah & Lutfullah Tooba & Zahra Kanwal, 2024. "COVID-19 and Seasonality in Monthly Returns: a Firm Level Analysis of PSX," Zagreb International Review of Economics and Business, Sciendo, vol. 27(1), pages 201-230.
    2. abbas, asad, 2024. "Robotic Process Automation (RPA) and AI in Business Process Optimization," OSF Preprints hwtye, Center for Open Science.
    3. Balcilar, Mehmet & Gupta, Rangan & Kim, Won Joong & Kyei, Clement, 2019. "The role of economic policy uncertainties in predicting stock returns and their volatility for Hong Kong, Malaysia and South Korea," International Review of Economics & Finance, Elsevier, vol. 59(C), pages 150-163.

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