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An empirical study of the relation between stock price and EPS in panel data: Korea case


  • Keun-Yeob Oh
  • Bonghan Kim
  • Honkee Kim


This study investigates the relationship between stock price and earnings-per-share using Korean stock market data. The nonstationarity of the data has been managed. In particular, recently developed panel cointegration techniques are used, which are known to be more powerful than individual cointegration methods. The tests applied to the panel data as a whole showed the cointegration relationship between the stock prices and EPS (earnings-per-share), while tests for the individual stock prices could not detect the cointegration. Therefore, there is now some evidence in support of weak mean-reversion for the PER (Price-Earnings Ratio). However, only mixed evidence was obtained for the hypothesis that the coefficient of EPS to the stock prices is equal to one. In short, stock prices do seem to move with firm fundamentals, in the long-run and on average, but not necessarily at the same rate.

Suggested Citation

  • Keun-Yeob Oh & Bonghan Kim & Honkee Kim, 2006. "An empirical study of the relation between stock price and EPS in panel data: Korea case," Applied Economics, Taylor & Francis Journals, vol. 38(20), pages 2361-2369.
  • Handle: RePEc:taf:applec:v:38:y:2006:i:20:p:2361-2369
    DOI: 10.1080/00036840500427593

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    References listed on IDEAS

    1. Pedroni, Peter, 2004. "Panel Cointegration: Asymptotic And Finite Sample Properties Of Pooled Time Series Tests With An Application To The Ppp Hypothesis," Econometric Theory, Cambridge University Press, vol. 20(03), pages 597-625, June.
    2. Kao, Chihwa, 1999. "Spurious regression and residual-based tests for cointegration in panel data," Journal of Econometrics, Elsevier, vol. 90(1), pages 1-44, May.
    3. Peter Pedroni, 2000. "Fully Modified OLS for Heterogeneous Cointegrated Panels," Department of Economics Working Papers 2000-03, Department of Economics, Williams College.
    4. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
    5. Fisher, Eric O'N & Park, Joon Y, 1991. "Testing Purchasing Power Parity under the Null Hypothesis of Co-integration," Economic Journal, Royal Economic Society, vol. 101(409), pages 1476-1484, November.
    6. Peter C. B. Phillips & Hyungsik R. Moon, 1999. "Linear Regression Limit Theory for Nonstationary Panel Data," Econometrica, Econometric Society, vol. 67(5), pages 1057-1112, September.
    7. Peter Pedroni, 2001. "Purchasing Power Parity Tests In Cointegrated Panels," The Review of Economics and Statistics, MIT Press, vol. 83(4), pages 727-731, November.
    8. Hakkio, Craig S. & Rush, Mark, 1991. "Cointegration: how short is the long run?," Journal of International Money and Finance, Elsevier, vol. 10(4), pages 571-581, December.
    9. Carmen Ansotegui & Maria Victoria Esteban, 2002. "Cointegration for market forecast in the Spanish stock market," Applied Economics, Taylor & Francis Journals, vol. 34(7), pages 843-857.
    10. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
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    Cited by:

    1. repec:eco:journ1:2014-02-4 is not listed on IDEAS
    2. James Gander, 2009. "Equity valuation under Bull and Bear market regimes in South East Asia firms: a switching regression approach," Applied Economics, Taylor & Francis Journals, vol. 43(7), pages 837-844.
    3. Tian Zhao, 2012. "Firm size, information acquisition and price efficiency," Quantitative Finance, Taylor & Francis Journals, vol. 12(10), pages 1599-1614, October.
    4. repec:hur:ijaraf:v:7:y:2017:i:4:p:62-70 is not listed on IDEAS

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