This paper examines the relationship between macroeconomic and firm-specific determinants of stock returns of Sri Lanka and United Kingdom (UK). Our results are based on the fixed effects regression models since those perform statistically better than the random effects and pooled OLS models for Sri Lankan data and the fitted one-way fixed effects firm factor regression indicates that Return on Assets ( ROA) and sales growth rate play a significant role in explaining variation in stock returns in Sri Lankan companies while one-way random effect firm factor model in UK shows that E/P ratio, B/M ratio, fixed assets growth rate, size and ROA are the most dominants priced factors in London Stock Exchange (LSE). The explanatory power of regressions increases considerably when we incorporate macroeconomic indicators controlling for firm effects and results show that inflation, GDP and exchange rate remain leading predictors of stock returns variation in both Colombo Stock Exchange (CSE) and LSE whereas unemployment and Foreign Portfolio Investments (FPI) become statistically significant only in CSE. Thus, it is noted that stock prices of Sri Lankan and UK companies are sensitive to both company and macroeconomic fundamental changes hence, the stock market analysts and investors find that they can make fundamental base trading strategies as publicly available information play a key role in predicting future returns bringing the conclusions of the Sri Lankan stock market is in semi-strong form efficient in doubt.
| Published in | Journal of Finance and Accounting (Volume 3, Issue 4) |
| DOI | 10.11648/j.jfa.20150304.14 |
| Page(s) | 86-96 |
| Creative Commons |
This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited. |
| Copyright |
Copyright © The Author(s), 2015. Published by Science Publishing Group |
Colombo Stock Exchange, Determinants, London Stock Exchange, Panel Data Regression, Stock Returns
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APA Style
L. M. C. S. Menike, P. M. Dunusinghe, A. Ranasinghe. (2015). Macroeconomic and Firm Specific Determinants of Stock Returns: A Comparative Analysis of Stock Markets in Sri Lanka and in the United Kingdom. Journal of Finance and Accounting, 3(4), 86-96. https://doi.org/10.11648/j.jfa.20150304.14
ACS Style
L. M. C. S. Menike; P. M. Dunusinghe; A. Ranasinghe. Macroeconomic and Firm Specific Determinants of Stock Returns: A Comparative Analysis of Stock Markets in Sri Lanka and in the United Kingdom. J. Finance Account. 2015, 3(4), 86-96. doi: 10.11648/j.jfa.20150304.14
AMA Style
L. M. C. S. Menike, P. M. Dunusinghe, A. Ranasinghe. Macroeconomic and Firm Specific Determinants of Stock Returns: A Comparative Analysis of Stock Markets in Sri Lanka and in the United Kingdom. J Finance Account. 2015;3(4):86-96. doi: 10.11648/j.jfa.20150304.14
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Download@article{10.11648/j.jfa.20150304.14,
author = {L. M. C. S. Menike and P. M. Dunusinghe and A. Ranasinghe},
title = {Macroeconomic and Firm Specific Determinants of Stock Returns: A Comparative Analysis of Stock Markets in Sri Lanka and in the United Kingdom},
journal = {Journal of Finance and Accounting},
volume = {3},
number = {4},
pages = {86-96},
doi = {10.11648/j.jfa.20150304.14},
url = {https://doi.org/10.11648/j.jfa.20150304.14},
eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jfa.20150304.14},
abstract = {This paper examines the relationship between macroeconomic and firm-specific determinants of stock returns of Sri Lanka and United Kingdom (UK). Our results are based on the fixed effects regression models since those perform statistically better than the random effects and pooled OLS models for Sri Lankan data and the fitted one-way fixed effects firm factor regression indicates that Return on Assets ( ROA) and sales growth rate play a significant role in explaining variation in stock returns in Sri Lankan companies while one-way random effect firm factor model in UK shows that E/P ratio, B/M ratio, fixed assets growth rate, size and ROA are the most dominants priced factors in London Stock Exchange (LSE). The explanatory power of regressions increases considerably when we incorporate macroeconomic indicators controlling for firm effects and results show that inflation, GDP and exchange rate remain leading predictors of stock returns variation in both Colombo Stock Exchange (CSE) and LSE whereas unemployment and Foreign Portfolio Investments (FPI) become statistically significant only in CSE. Thus, it is noted that stock prices of Sri Lankan and UK companies are sensitive to both company and macroeconomic fundamental changes hence, the stock market analysts and investors find that they can make fundamental base trading strategies as publicly available information play a key role in predicting future returns bringing the conclusions of the Sri Lankan stock market is in semi-strong form efficient in doubt.},
year = {2015}
}
TY - JOUR T1 - Macroeconomic and Firm Specific Determinants of Stock Returns: A Comparative Analysis of Stock Markets in Sri Lanka and in the United Kingdom AU - L. M. C. S. Menike AU - P. M. Dunusinghe AU - A. Ranasinghe Y1 - 2015/06/29 PY - 2015 N1 - https://doi.org/10.11648/j.jfa.20150304.14 DO - 10.11648/j.jfa.20150304.14 T2 - Journal of Finance and Accounting JF - Journal of Finance and Accounting JO - Journal of Finance and Accounting SP - 86 EP - 96 PB - Science Publishing Group SN - 2330-7323 UR - https://doi.org/10.11648/j.jfa.20150304.14 AB - This paper examines the relationship between macroeconomic and firm-specific determinants of stock returns of Sri Lanka and United Kingdom (UK). Our results are based on the fixed effects regression models since those perform statistically better than the random effects and pooled OLS models for Sri Lankan data and the fitted one-way fixed effects firm factor regression indicates that Return on Assets ( ROA) and sales growth rate play a significant role in explaining variation in stock returns in Sri Lankan companies while one-way random effect firm factor model in UK shows that E/P ratio, B/M ratio, fixed assets growth rate, size and ROA are the most dominants priced factors in London Stock Exchange (LSE). The explanatory power of regressions increases considerably when we incorporate macroeconomic indicators controlling for firm effects and results show that inflation, GDP and exchange rate remain leading predictors of stock returns variation in both Colombo Stock Exchange (CSE) and LSE whereas unemployment and Foreign Portfolio Investments (FPI) become statistically significant only in CSE. Thus, it is noted that stock prices of Sri Lankan and UK companies are sensitive to both company and macroeconomic fundamental changes hence, the stock market analysts and investors find that they can make fundamental base trading strategies as publicly available information play a key role in predicting future returns bringing the conclusions of the Sri Lankan stock market is in semi-strong form efficient in doubt. VL - 3 IS - 4 ER -
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