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Application of fundamental multiples in capital asset pricing. An empirical verification on the Polish market (1998-2004)

Author

Listed:
  • Slawomir Sklinda

    (Warsaw School of Economics)

Abstract

The aim of the paper is the empirical verification of fundamental multiples as capital asset pricing tools for the companies listed on Warsaw Stock Exchange. Three multiples are examined: earnings to price, operating cash flow to price and book value to equity. In the first step, the fundamental multiples are examined in terms of their ability to explain expected returns. In the second step, the company’s capitalization as a size proxy is added to the set of explanatory variables. The methodology is based on Fama and French [2], with necessary adjustments. The research is carried on monthly data for 1998-2004 for companies listed on Warsaw Stock Exchange. The results do not support the proposition that fundamental multiples adequately explain expected returns. It seems that relations between firms’ returns and their multiples which are well documented for Western equity markets do not hold for companies listed on Polish stock exchange.

Suggested Citation

  • Slawomir Sklinda, 2006. "Application of fundamental multiples in capital asset pricing. An empirical verification on the Polish market (1998-2004)," Working Papers 9, Department of Applied Econometrics, Warsaw School of Economics.
    • Handle: RePEc:wse:wpaper:9
    as

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    File URL: http://kolegia.sgh.waw.pl/pl/KAE/struktura/IE/struktura/ZES/Documents/Working_Papers/aewp02-06.pdf
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    References listed on IDEAS

    as
    1. Fama, Eugene F & French, Kenneth R, 1992. "The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-465, June.
    2. Chan, Louis K C & Hamao, Yasushi & Lakonishok, Josef, 1991. "Fundamentals and Stock Returns in Japan," Journal of Finance, American Finance Association, vol. 46(5), pages 1739-1764, December.
    3. Barber, Brad M & Lyon, John D, 1997. "Firm Size, Book-to-Market Ratio, and Security Returns: A Holdout Sample of Financial Firms," Journal of Finance, American Finance Association, vol. 52(2), pages 875-883, June.
    4. Daniel, Kent & Titman, Sheridan, 1997. "Evidence on the Characteristics of Cross Sectional Variation in Stock Returns," Journal of Finance, American Finance Association, vol. 52(1), pages 1-33, March.
    5. Fama, Eugene F & MacBeth, James D, 1973. "Risk, Return, and Equilibrium: Empirical Tests," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 607-636, May-June.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    asset pricing; financial multiples; multiple valuation; CAPM; APT; fundamental valuation;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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