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Multivariate Causal Estimates of Dividend Yields, Price Earning Ratio and Expected Stock Returns: Experience from Malaysia

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  • Wan Mahmood, Wan Mansor
  • Abdul Fatah, Faizatul Syuhada

Abstract

The study examines the relationship among Malaysian’s market stock return, dividend yields and price earnings rato. Specifically, it examines the existence of long-run and short-run relationship and also their predictive power (causality) between and among market stock return, dividend yieds and price earnings. Using the monthly data from 1989-2005, the study finds that all these fundamental variables have a strong long run relationship. As for the short run relationship, the results show significant positive predictive power from dividend yield to stock return and significant negative relation from stock returns toprice earning ratios. In addition, applyingmultivariate causality test, the results show that both dividend yields and price earning ratio Granger cause (predict) the stock return. Similar results are found from stock returns and P/E ratio to dividend yield, as well as from dividend yied and stock returns to P/E raton but with lesser magnitude. Thus, fundamental variables are an important source of nformation in determnng stock market returns and useful to investors and other marke participants in deciding their investment strategies.

Suggested Citation

  • Wan Mahmood, Wan Mansor & Abdul Fatah, Faizatul Syuhada, 2007. "Multivariate Causal Estimates of Dividend Yields, Price Earning Ratio and Expected Stock Returns: Experience from Malaysia," MPRA Paper 14614, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:14614
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    File URL: https://mpra.ub.uni-muenchen.de/14614/1/MPRA_paper_14614.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Stock return; dividend yield; price earning ratio; Malaysian market;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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