The relationship between size, book-to-market equity ratio, earnings–price ratio, and return for the Tehran stock Exchange

Lafmejani, M.

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ISSN 2369-7407 (Online) - ISSN 2369-7393 (Print) Quarterly Publication Volume 3 Issue 1 pp. 11-18 , 2017

The relationship between size, book-to-market equity ratio, earnings–price ratio, and return for the Tehran stock Exchange Pages 11-18 Download PDF

Authors: Mohammad Ali Sadeghi Lafmejani

DOI: 10.5267/j.ac.2016.6.002

Keywords: Tehran Stock Exchange, Value, Growth, Market sensitivity, Liquidity, Firm size

Abstract: This paper presents an empirical investigation to determine whether or there is any difference between the returns of two value and growth portfolios, sorted by price-to-earnings (P/E) and price-to-book value (P/BV), in terms of the ratios of market sensitivity to index (β), firm size and market liquidity in listed firms in Tehran Stock Exchange (TSE) over the period 2001-2008. The selected firms were collected from those with existing two-consecutive positive P/E and P/BV ratios and by excluding financial and holding firms. There were five independent variables for the proposed study of this paper including P/E, P/B, market size, market sensitivity beta (β) and market liquidity. In each year, we first sort firms in non-decreasing order and setup four set of portfolios with equal firms. Therefore, the first portfolio with the lowest P/E ratio is called value portfolio and the last one with the highest P/E ratio is called growth portfolio. This process was repeated based on P/BV ratio to determine value and growth portfolios, accordingly. The study investigated the characteristics of two portfolios based on firm size, β and liquidity. The study has implemented t-student and Levin’s test to examine different hypotheses and the results have indicated mix effects of market sensitivity, firm size and market liquidity on returns of the firms in various periods.

How to cite this paper

 Lafmejani, M. (2017). The relationship between size, book-to-market equity ratio, earnings–price ratio, and return for the Tehran stock Exchange.Accounting, 3(1), 11-18.

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