Relationships Between Stock Returns and Corporate Financial Ratios Based on a Statistical Analysis of Corporate Data from the Hong Kong Stock Market

LAI Ping-fu (Brian)
Division of Business and Management, United International College, Beijing Normal University, Hong Kong Baptist University

CHO Kwai-Yee (Kevin)

ABRS International Consultancy

Published in: Public Finance Quarterly 2016/1 (p. 110-123.)

SUMMARY: The financial sector is the foundation and lifeblood of the 21st century economy and the global recessions witnessed during the past few years, serve as a testament to this assertion. In order to explore the effectiveness of popular financial ratios this study adopted a positivist investigation into ratios, such financial ratios are selected from 17 firms of 50 HSI constituent stocks in Hong Kong Stock Exchange then using a multiple regression analysis technique. This involved comparing the effectiveness of a number of independent variables are price-to-sales, market-to-book, earnings per share, dividend yield, market capitalization etc., against the dependent variable of stock returns received by investors. Whilst the literature suggests that there is a clear relationship and dependence between these variables, the results of this research proved inconclusive. As such, it was not possible to say categorically which of the financial instruments under investigation was the most effective in predicting stok returns and thus which was the most useful to prospective investors. The research did however contribute to our understanding of the analysis and investigation of financial instruments, as well as the extent to which analysis of one firm, industry or market can be generalised an applied elsewhere. Furthermore, the research also determined the close alignment between a regression line and financial ratio data. As a result, it showed the effectiveness and suitability of multiple regression to research within the financial disciplines.

KEYWORDS: Financial Ratios, Stock Returns, Hong Kong Stock Exchange, Multiple Regression Analysis

C33, E44, G11, G12, G17

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