Effect of Financial Ratio on LQ45 2019 Stock Return

DOI

10.2991/aebmr.k.210522.024How to use a DOI?

Keywords

Financial ratio, stock price, stock return, LQ45

Abstract

Efficient Market Hypothesis states that stock price immediately reflects all available information, but evidence on delay in information absorption gave rise to the idea that current financial ratios may affect future stock price and return. This study aimed to determine whether financial ratios affect stock return in Indonesian market, represented by stocks in LQ45 2019 index, and to study factors that may cause deviation in this regard. We obtained panel data from stocks in LQ45 index of Indonesia Stock Exchange February-July 2019 and/or August 2019-January 2020, observed from December 2014 to December 2019. Independent variables were financial ratios, and dependent variables were quarterly and annual stock returns. Data were collected in June 2020. Single-stock analysis showed varying results with varying beta and adjusted R-squared values, with trend of PER and PBV being prominent factors. All-stocks analysis revealed negative influence of DY on annual return with poor adjusted R-squared value, suggesting that financial ratios were unable to universally explain stock returns. Additional analyses with information lag of 2–4 quarters showed varying results across quarters, among which were significant effects of ROE and NPM, suggesting delay in information absorption. We concluded that financial ratios affected LQ45 2019 stock return in stock-specific and lag-specific fashion, with no immediate effect on quarterly return of all stocks but significant effect of DY on annual return. PER, PBV, ROE, and NPM may have benefits for prediction depending on stocks and lag periods. Regardless, investors may still be able to predict stock return by single-stock analyses.

Copyright

© 2021, the Authors. Published by Atlantis Press.

Open Access

This is an open access article distributed under the CC BY-NC license (http://creativecommons.org/licenses/by-nc/4.0/).

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TY  - CONF
AU  - Peter Pratama
AU  - Junino Jahja
PY  - 2021
DA  - 2021/05/25
TI  - Effect of Financial Ratio on LQ45 2019 Stock Return
BT  - Proceedings of the International Conference on Business and Engineering Management (ICONBEM 2021)
PB  - Atlantis Press
SP  - 176
EP  - 183
SN  - 2352-5428
UR  - https://doi.org/10.2991/aebmr.k.210522.024
DO  - 10.2991/aebmr.k.210522.024
ID  - Pratama2021
ER  -