Improper Uses of Stock Price Variables in Empirical Research: A Review Article

This review article shows how empirical studies are often inappropriate in using stock price data to be related to firm financial performance and other relevant variables. The analyses of the articles about stock price as a sample show that there is improper use of data on the stock price. Most of them use prices which are closing prices of annual financial statements, when financial statements information is not known to investors because the financial statements have not been published as of that date. All of the article samples used stock prices in absolute terms that are not relative to the movement of the stock price index. This indicates that the results of the previous studies in the articles fail to prove that stock price movements are really influenced by changes in the firm's financial performance and not because the stock market is bullish or bearish. It is recommended that future studies about the firm financial performance and the relation to stock price, consistent with the efficient market hypothesis (EMH) that the stock price should use the stock price after the publication of financial statements when all information about the firm is reflected in firm stock price. Consistent with the capital asset pricing model (CAPM) and arbitrage pricing theory (APT), the stock price should use the stock price relative to its stock market index to prove that the movement of the stock price is affected by the change in the firm financial performance.