Advertisement

Examining the Relationship between the Stock Returns and Earnings Measures – Evidence from Borsa Istanbul

  • Asil Azimli
  • Pınar Evrim Mandaci
Conference paper
Part of the Springer Proceedings in Business and Economics book series (SPBE)

Abstract

This paper investigates the relationship between stock returns and different types of earnings measures (such as net income, gross profits, operating profitability, cash-based operating profitability and accruals) for the firms traded on Borsa Istanbul. We construct portfolios by sorting firms according to the implied earning measures from low to high and analyze whether there are differences among them. Our sample period is from June 2007 to December 2015 covering 172 firms in average. Our results consistent with the previous studies indicating the profitability of equally and in some cases value weighted extreme portfolio investment strategies based on earnings measures.

Keywords

Stock returns Borsa Istanbul Portfolio 

References

  1. Banz, R. (1981). The relationship between return and market value of common stocks. Journal of Financial Economics, 1, 3–18.CrossRefGoogle Scholar
  2. Ball, R., & Brown, P. (1968). An empirical evaluation of accounting income numbers. Journal of Accounting Research, 6(2), 159–178.CrossRefGoogle Scholar
  3. Ball, R., Gerakos, J., Linnainmaa, J. T., & Nikolaev, V. (2015). Deflating profitability. Journal of Financial Economics, 117, 225–248.CrossRefGoogle Scholar
  4. Ball, R., Gerakos, J., Linnainmaa, J. T., & Nikolaev, V. (2016). Accruals, cash flows, and operating profitability in the cross section of stock returns. Journal of Financial Economics, 121, 28–45.CrossRefGoogle Scholar
  5. Beaver, W., Lambert, R., & Morse, D. (1980). The information content of security prices. Journal of Accounting and Economics, 2, 3–28.CrossRefGoogle Scholar
  6. Demirtas, K. O., & Zirek, D. (2011). Aggregate earnings and expected stock returns in emerging markets. Emerging Markets Finance and Trade, 47(3), 4–22.CrossRefGoogle Scholar
  7. Easton, P.D., & Harris, T.S. (1991). Earnings as an explanatory variable for returns. Journal of Accounting Research, Spring, 19–36.Google Scholar
  8. Fama, E., & French, K. (1992). The cross-section of expected stock returns. The Journal of Finance, 67, 427–465.CrossRefGoogle Scholar
  9. Fama, E., & French, K. (1993). Common risk factors in the returns on stocks and bonds. Journal of Financial Economics, 33(1), 3–56.CrossRefGoogle Scholar
  10. Fama, E., & French, K. (1996). Multifactor explanations of asset pricing anomalies. The Journal of Finance, 51(1), 55–84.CrossRefGoogle Scholar
  11. Fama, E., & French, K. (1998). Value versus growth: The international evidence. The Journal of Finance, 53(6), 1975–1999.CrossRefGoogle Scholar
  12. Fama, E., & French, K. (2008). Dissecting anomalies. The Journal of Finance, 63(4), 1653–1678.CrossRefGoogle Scholar
  13. Fama, E., & French, K. (2015). A five-factor asset pricing model. Journal of Finacial Econometrics, 116, 1–22.Google Scholar
  14. Gordon, M. J., & Shapiro, E. (1956). Capital equipment analysis: The required rate of return. Management Science, 10, 102–110.CrossRefGoogle Scholar
  15. Heston, S., Rouwenhorst, K., & Wessels, R. (1999). The role of beta and size in the cross-section of Europen stock returns. European Financial Management, 5(1), 9–27.CrossRefGoogle Scholar
  16. Kothari, S. P. (2001). Capital markets research in accounting. Journal of Accounting and Economics, 31(1), 105–231.CrossRefGoogle Scholar
  17. Novy-Marx, R. (2013). The other side of value: The gross profitability premium. Journal of Financial Economics, 108(1), 1–28.CrossRefGoogle Scholar
  18. Ozkan, N., & Kayali, M. M. (2015). The accrual anomaly: Evidence from Borsa Istanbul. Borsa Istanbul Review, 15(2), 115–125.Google Scholar
  19. Rosenberg, B., Reid, K., & Lanstein, R. (1985). Persuasive evidence of market inefficiency. The Jounal of Portfolio Management, 11(3), 9–16.CrossRefGoogle Scholar
  20. Rouwenhorst, K. (1999). Local return factors and turnover in emerging stock markets. The Journal of Finance, 65(4), 1439–1464.CrossRefGoogle Scholar
  21. Sloan, R. G. (1996). Do stock prices fully reflect information in accruals and cash flows about future earnings? The Accounting Review, 71(3), 289–315.Google Scholar

Copyright information

© Springer International Publishing AG 2017

Authors and Affiliations

  1. 1.Department of Business AdministrationDokuz Eylul UniversityİzmirTurkey

Personalised recommendations