Abstract
This study examines relations between stock returns and potential explanatory factors in Korea, an important and segmented emerging market. Our results show that Korean stock returns in general and returns on stocks listed in Section 1 in particular are significantly positively related to book-to-market, sales-price, and debt-equity ratios, but not significantly related to market value of equity. Returns on stocks listed in Section 2 are, however, negatively related to market value of equity and not significantly related to the other three variables. Among the variables investigated by us, book-to-market ratio has the greatest explanatory power for stock returns and it indicates superior returns for value stocks. Our findings strengthen the international evidence of the role of book-to-market ratio in explaining stock returns by demonstrating its significance even in the segmented Korean market.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Bailey, W. and Jagtiani, J. (1994) Foreign ownership restrictions and stock prices in the Thai capital market, J. Financ. Econom. 36, 57–87.
Banz, R.W. (1981) The relationship between return and market value of common stocks, J. Financ. Econom. 9, 3–18.
Barbee, W. C., Mukherji, S., and Raines, G. A. (1996) Do the sales-price and debt-equity ratios explain stock returns better than the book-to-market value of equity ratio and firm size? Financ. Analysts J. 52, 56–60.
Basu, S. (1977) The investment performance of common stocks in relation to their price-earnings ratios: A test of the efficient market hypothesis, J. Finance 32, 663–682.
Bessembinder, H. and Chan, K. (1995) The profitability of technical trading rules in the Asian stock markets, Pacific-Basin Finance J. 3, 257–284.
Bhandari, L. C. (1988) Debt/equity ratio and expected common stock returns: Empirical evidence, J. Finance 43, 507–528.
Caires, B. de and Fletter, D., (eds) (1990) Guide to World Equity Markets, Euromoney Publications, London.
Capaul, C., Rowley, I., and Sharpe, W. F. (1993) International value and growth stock returns, Financ. Analysts J. 49, 27–36.
Chan, L. K. C., Hamao, Y., and Lakonishok, J. (1991) Fundamentals and stock returns in Japan, J. Finance 46, 1739–1764.
Cheung, C. S. and Lee, J. (1993) Integration vs segmentation in the Korean stock market, J. Busin. Financ. Account. 20, 267–273.
Fama, E. F. and French, K. R. (1992) The cross-section of expected stock returns, J. Finance 47, 427–465.
Fama, E. F. and MacBeth, J. (1973) Risk, return and equilibrium: Empirical tests, J. Polit. Economy 81, 607–636.
Korea Stock Exchange, Fact Book, 1992.
Lo, A. and MacKinlay, A. C. (1990) Data-snooping biases in tests of financial asset pricing models, Rev. Financ. Stud. 3, 431–467.
Mukherji, S., Dhatt, M. S., and Kim, Y. H. (1997) A fundamental analysis of Korean stock returns, Financ. Analysts J. 53, 75–80.
Roll, R. (1995) An empirical survey of Indonesian equities, 1985–1992, Pacific-Basin Finance J. 3, 159–192.
Author information
Authors and Affiliations
Rights and permissions
About this article
Cite this article
Dhatt, M.S., Kim, Y.H. & Mukherji, S. Relations Between Stock Returns and Fundamental Variables: Evidence from a Segmented Market. Asia-Pacific Financial Markets 6, 221–233 (1999). https://doi.org/10.1023/A:1010071921399
Issue Date:
DOI: https://doi.org/10.1023/A:1010071921399