Do Financial Ratios Affect Stock Returns in the Athens Stock Exchange?

Abstract

This study examines whether selected financial ratios can be used to explain stock price movement in the Athens stock exchange (ASE) for the period between 2005 and 2014. Information about potential driving factors of stock returns can be useful to capital market analysts and investors when trying to predict stock price movements and also to the managers of the underlying companies when they are planning their strategies. The financial ratios selected are the return on equity, the net profit margin, the assets turnover ratio, the assets to equity ratio, the current ratio and the dividend payout ratio. The empirical results of our study showed that during the examined period a statistically significant relation was not in generally observed between stock returns and the examined ratios. This was also the case when the periods from 2005 to 2009 and from 2010 to 2014 were examined separately. Only the return on equity was found to be significant for the overall period, as well as for the period from 2010 to 2014. Opposite to what we expected, the ROE coefficient was found to be negatively related to stock returns.