SECTORAL ANALYSIS OF FIRM FUNDAMENTAL FACTORS AND STOCK RETURNS IN THE SOUTH AFRICAN EQUITY MARKET

Abstract

In this paper, we attempt to verify the relationship of the firms fundamentals and its stock returns. Price-Earnings ratio (P/E ratio), dividend yield and market capitalization are used as proxies of a firms fundamental values. All series are in a monthly frequency for the period 1995-2011 and were obtained from Thomson Reuters Datastream. We have considered a sample of firms in some particular main sectors listed on the Johannesburg stock market. The sectors in this study are chosen based on the availability of firm-level data. The empirical results indicate that three fundamentals have significantly explained the differences in cross- sectional stock returns in each sector, and such cross-sectional differences also vary across sectors, both within static and dynamic panel data models