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The explaining role of the Earning-Price Ratio in the Spanish Stock Market

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  • Javier DePeña

    ()

  • Luis A. Gil-Alana

    ()
    (School of Economics and Business Administration, University of Navarra)

Abstract

In this paper we study the suitability of the CAPM to the Spanish Stock Market Interconnection System (SIBE) for the period 1988-2000, by means of time series and cross-section multivariate tests. Even though there is no enough empirical evidence to reject this model, it is shown that the relation between risk beta and stock returns is weak. Therefore, we look for several fundamental variables –using Fama and MacBeth OLS (Ordinary Least Squares) and LTS (Least Trimmed Squares) estimators– which could explain, with or without beta, the cross-section of stock returns. We conclude that there is a strong earning-price ratio effect in the Spanish Stock Market and that beta is able to explain the cross-section of expected returns, not solely, but jointly with earningprice ratio. On the other hand, there is neither size nor book-to-market ratio effects. However, there is evidence of turn-of-the year effect, which suggests tax-loss selling and window-dressing phenomena.

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File URL: http://www.unav.es/facultad/econom/files/workingpapersmodule/@random437a048e3df62/1132243702_wp0303.pdf
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Bibliographic Info

Paper provided by School of Economics and Business Administration, University of Navarra in its series Faculty Working Papers with number 03/03.

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Length: 27 pages pages
Date of creation: Jan 2003
Date of revision:
Handle: RePEc:una:unccee:wp0303

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Web page: http://www.unav.es/facultad/econom

Related research

Keywords: CAPM; anomalies; tax-loss selling; window-dressing;

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