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Financial ratios used by equity analysts in Mexico and stock returns

Author

Listed:
  • Carlos Omar Trejo Pech

    (Universidad Panamericana)

  • Magdy Noguera

    (University of Idaho)

  • Susan White

    (University of Maryland)

Abstract

A sample of recommendation reports by equity analysts covering Mexican publicly traded firms in Mexico is studied. We propose a set of “most preferred” financial ratios from this sample. It is found that the most preferred ratios by equity analysts, a group of sophisticated users, are not those ratios typically covered in financial textbooks. Moreover, by using panel regression analysis, we test the relationship between financial ratios and leading stock returns during the 1995–2011 period. Overall, consistent with the efficient market hypothesis, the results show that estimates of financial ratios most preferred by equity analysts have predictive power on 1-year future stock returns. We find no evidence of predictive power on 2-year stock returns.

Suggested Citation

  • Carlos Omar Trejo Pech & Magdy Noguera & Susan White, 2015. "Financial ratios used by equity analysts in Mexico and stock returns," Contaduría y Administración, Accounting and Management, vol. 60(3), pages 578-592, julio-sep.
  • Handle: RePEc:nax:conyad:v:60:y:2015:i:3:p:578-592
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    File URL: http://www.cya.unam.mx/index.php/cya/article/view/743
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    References listed on IDEAS

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