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The explaining role of the Earning-Price Ratio in the Spanish Stock Market

Author

Listed:
  • Javier DePeña
  • Luis A. Gil-Alana

    (School of Economics and Business Administration, University of Navarra)

Abstract

In this paper we study the suitability of the CAPM to the Spanish Stock Market Interconnection System (SIBE) for the period 1988-2000, by means of time series and cross-section multivariate tests. Even though there is no enough empirical evidence to reject this model, it is shown that the relation between risk beta and stock returns is weak. Therefore, we look for several fundamental variables using Fama and MacBeth OLS (Ordinary Least Squares) and LTS (Least Trimmed Squares) estimators which could explain, with or without beta, the cross-section of stock returns. We conclude that there is a strong earning-price ratio effect in the Spanish Stock Market and that beta is able to explain the cross-section of expected returns, not solely, but jointly with earningprice ratio. On the other hand, there is neither size nor book-to-market ratio effects. However, there is evidence of turn-of-the year effect, which suggests tax-loss selling and window-dressing phenomena.

Suggested Citation

  • Javier DePeña & Luis A. Gil-Alana, 2003. "The explaining role of the Earning-Price Ratio in the Spanish Stock Market," Faculty Working Papers 03/03, School of Economics and Business Administration, University of Navarra.
    • Handle: RePEc:una:unccee:wp0303
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    CAPM; anomalies; tax-loss selling; window-dressing;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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