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On The Functional Form Of Earnings And Stock Prices: International Evidence And Implications For The E/P Anomaly

Author

Listed:
  • G. Geoffrey Booth
  • Teppo Martikainen
  • Jukka Perttunen
  • Paavo Yli‐Olli

Abstract

This paper examines the functional form of earnings and stock prices on US and Finnish stock markets. Although the functional specification of the components of financial ratios based on purely accounting numbers has received considerable attention, the functional form of earnings and stock prices has not been investigated carefully enough. This investigation is, however, important because of the common use of E/P ratio in financial statement analysis. The empirical evidence provided by this study indicates that the proportional relationship between earnings and stock prices is rejected in both countries. In addition, it is discovered that this deviation from proportionality is a major factor producing the so‐called E/P anomaly in these two countries.

Suggested Citation

  • G. Geoffrey Booth & Teppo Martikainen & Jukka Perttunen & Paavo Yli‐Olli, 1994. "On The Functional Form Of Earnings And Stock Prices: International Evidence And Implications For The E/P Anomaly," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 21(3), pages 395-408, April.
    • Handle: RePEc:bla:jbfnac:v:21:y:1994:i:3:p:395-408
    DOI: 10.1111/j.1468-5957.1994.tb00326.x
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    References listed on IDEAS

    as
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