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The Relationship between Earnings-to-Price, Current Ratio, Profit Margin and Return: An Empirical Analysis on Istanbul Stock Exchange

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  • Hakkı Öztürk
  • Tolun A. Karabulut

Abstract

This paper aims to investigate the relationship between current ratio, earnings to price, net profit margin and stock returns in Ä°stanbul Stock Exchange over the period 2008-2016 by employing panel data analysis. Due to the existence of heteroskedasticity, cross sectional dependence and autocorrelation in sample data, two-way fixed effects model is estimated by robust estimators. Both Parks-Kmenta and Beck-Katz methods are conducted to check whether the results are consistent or not. According to Park-Kmenta estimation model, the results show that earnings to price and net profit margin are significant to explain stock returns in Ä°stanbul Stock Exchange while current ratio is found insignificant. Â Moreover, the test based on Beck-Katz model produces the similar results. Earnings to price and net profit margin are strong determinants of stock returns in Istanbul Stock Exchange. Stocks with higher E/P ratios and profit margins generate higher returns for the next period.

Suggested Citation

  • Hakkı Öztürk & Tolun A. Karabulut, 2018. "The Relationship between Earnings-to-Price, Current Ratio, Profit Margin and Return: An Empirical Analysis on Istanbul Stock Exchange," Accounting and Finance Research, Sciedu Press, vol. 7(1), pages 109-109, February.
    • Handle: RePEc:jfr:afr111:v:7:y:2018:i:1:p:109
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    References listed on IDEAS

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    3. Chi-Wei Su & Ya-Wen Chang & Yahn-Shir Chen & Hsu-Ling Chang, 2008. "The Relationship between Stock Price and EPS: Evidence Based on Taiwan Panel Data," Economics Bulletin, AccessEcon, vol. 3(30), pages 1-12.
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    5. Daniel Hoechle, 2007. "Robust standard errors for panel regressions with cross-sectional dependence," Stata Journal, StataCorp LP, vol. 7(3), pages 281-312, September.
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    JEL classification:

    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
    • Z0 - Other Special Topics - - General

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