Predictors of Stock Returns: Some Evidence from an Emerging Market
Bibliographic record
Abstract
INTRODUCTIONThis study examines the relationship between stock returns and five variables, namely, dividends per share, dividend price ratio, price earnings ratio, book to market ratio, and size using data from emerging market country of Ghana. The study uses evidence from the Ghana Stock Exchange from the period from 2007 to 2013.By way of background, Ghana is located in West Africa and has an estimated population of 25 million (Central Intelligence Agency) [CIA], 2014). Ghana gained independence from England in 1957 and has been striving to develop a market economy ever since. Its economy is dominated by the production of gold, cocoa, and recently oil. Ghana's brisk economic growth, averaging more than 8 percent during the past five years, political stability, and oil discovery in 2007 has raised its profile among investors (Reuters, 10/31/13).The Ghana Stock Exchange is relatively small by international standards. It was established in July 1989 and trading commenced in November 1990. As of October 2014, there were 35 companies listed on the exchange. Listings on the exchange are regulated by the Listing Rules of the Ghana Stock Exchange, The Companies Code, Act 179, and L. I. 1728 of the Securities and Exchange Commission Regulations of Ghana, 2003.The relationship between stock returns and dividends per share, dividend price ratio, price earnings ratio, book to market ratio and size has been studied in several countries (Fama and French, 1995; McManus et al, 2004; Pontiff and Schall, 1998; Jaffe et al, 1989). These studies go back a number of years. However, no such studies have been done to date for Ghana, an emerging economy that has seen a lot of local and foreign investor interest within the past five years owing to its rapid economic growth and discovery of oil. Therefore, this study seeks to examine the effect of these variables on stock returns using evidence from the Ghana Stock Exchange.Specifically, the study seeks to determine if these variables can be used to predict stock returns on the Ghana Stock Exchange. Indeed, if these variables can be used to predict stock market returns, investors can use this information to make greater profits.Also, whereas earlier studies focused primarily on the relationship between stock performance and one or two of these variables, this study examines all these five variables together. Furthermore, the study contributes to the literature on predictors of stock returns by examining the issue from an emerging market perspective and examining the effect of several predictors together.LITERATURE REVIEWThere have been many studies going back several decades that have sought to identify the variables that can predict stock returns. These variables have included dividends per share, dividend price ratio, price earnings ratio, book to market ratio, and size. The studies have generally examined the relation between one or two of these factors and stock returns, and have mainly involved the industrial countries, like the United States, United Kingdom, Canada, Japan and Australia.Aggarwal et al. (1992) examined the price to book ratio effect in the Japanese market using evidence from the Tokyo Stock Exchange from 1968 to 1983. They observed that stocks with high price to book value ratios earn low returns whereas stocks with low price to book ratios have high returns.Aono, K. Sc T. Iwaisako (2010) examined the predictive ability of price earnings ratio using data from the Tokyo Stock Exchange from 1997 to 2009. They found that the performance of price earnings ratio in forecasting stock returns in Japan was weaker than that found in comparable studies in the United States.Using data from the New York Stock Exchange, American Stock Exchange and NASDAQ from 1963 to 1992, Fama and French (1995) have studied the behavior of stock prices and earnings in relation to size and book to market equity. They found that size and book to market equity are related to profitability and returns; firms with low book to market equity (high stock prices relative to book) are associated with sustained strong profitability and stock returns, and the converse is also true. …
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How this classification was reachedexpand
Full frame distilled prediction
Teacher imitationNot calibrated prevalence, not ground truth. Human validation pending. Learned from the 10,348 direct Codex labels and 10,348 direct Gemma labels. Candidate is the union of thresholded teacher heads; consensus is their intersection. These outputs are machine_predicted_unvalidated and are not human labels or direct frontier model labels.
Codex and Gemma teacher scores by category
| Category | Codex | Gemma |
|---|---|---|
| Metaresearch | 0.002 | 0.002 |
| Meta-epidemiology (narrow) | 0.000 | 0.000 |
| Meta-epidemiology (broad) | 0.001 | 0.000 |
| Bibliometrics | 0.000 | 0.000 |
| Science and technology studies | 0.000 | 0.000 |
| Scholarly communication | 0.000 | 0.003 |
| Open science | 0.000 | 0.000 |
| Research integrity | 0.000 | 0.000 |
| Insufficient payload (model declined to judge) | 0.000 | 0.000 |
Machine scores (provisional)
The two teacher heads of the student model, read on this work. A score orders the frame for review; it never asserts a category, and the validation status ships verbatim with every row.
Baseline scores from an immature model (maturity gate not passed, 7 training rounds). Scores rank; they never assert a category.
score_only:v0-immature-baseline · verbatim from the scoring run: score_only means the number may rank works, and no category label ships from itClassification
machine, unvalidatedMachine predicted; a candidate call from one teacher head, not a consensus.
How this classification was reached, model by model and score by score, is at the end of the page under "How this classification was reached".