Price to Earnings and Price to Book Ratios as Determinants of Stock Return: The Case of Financial Institutions Listed in Bahrain Bourse

Article DOI: https://doi.org/10.57017/jaes.v15.3(69).02

Author(s):

Mark P. DOBLAS College of Administrative and Financial Sciences, AMA International University, Kingdom of Bahrain
Ma. Cecilia P. LAGARAS
Jonas A. ENRIQUEZ College of Administrative and Financial Sciences, AMA International University, Kingdom of Bahrain

Abstract:

Price in relation to Earnings ratio (PE Ratio) and Book Value (PB Ratio) parameters have received considerable attention in predicting stock returns. However, there have been varying results of the predictive power of PE and PB Ratio to stock returns especially when different market conditions have been considered. This study was conducted to determine if PE and PB ratios can be used as predictors for stock market returns among financial institutions listed in Bahrain Stock Exchange. It utilized an analytical research design which made use of panel data analysis. Total samples of 19 financial institutions were included study with financial data covering the periods 2015 to 2018. The study found that both PE and PB ratio significantly predicts stock returns of financial institutions stocks in Bahrain at 0.05 level of significance. Both ratios have positive coefficients suggesting a positive association with stock returns. Finally, the study also concludes that loading PE and PB as predictor of stock returns would only generate estimate parameters that can only show cross and time fixed effects. Thus, individual time invariant variables or company and industry specific factors do not play a role in the ability of PE and PB ratios in predicting stock returns.

How to cite:

Doblas, M. P, Lagaras, M. C. P., & Enriquez, J. A. (2020). Price to Earnings and Price to Book Ratios as Determinants of Stock Return: The Case of Financial Institutions Listed in Bahrain Bourse. Journal of Applied Economic Sciences, Volume XV, Fall, 3(69), 532-539. https://doi.org/10.57017/jaes.v15.3(69).02

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