A Panel ARDL Application on the Research of the Relationships between Stock Returns and Financial Ratios

Abstract

In this research, one hundred firms that are a member of BIST Industrial Index are selected and the relationship between their stock returns and financial ratios are examined for the quarterly period of 2012-2017. For this purpose, lagged values of dependent (stock returns) and independent (financial ratios) variables are included in a regression model and the panel data is analyzed by employing Panel Autoregressive Distributed Lag (Panel-ARDL) Model that is developed during the last twenty years. The development of this method made it possible to investigate the stock return explanation and forecasting power of lagged values of all variables. According to the results obtained within this research, the existence of two different types of relationships between stock returns and financial ratios; consisting a statistically significant long-term relationship between stock returns and current ratio, accounts receivable turnover rate, asset turnover rate, net profit margin and shareholders’ equity/tangible fixed assets ratio and a statistically significant short-term relationship between stock returns and leverage ratio, asset turnover rate, net profit margin and accounts receivable turnover rate are observed.