Analysis of the Role of Fundamental Financial Ratios in Predicting the Stock Returns for Commercial Banks Listed on Amman Stock Exchange

Abstract

The objective of this study is to determine the predictive role of the Fundamental Financial Ratios for the Stock Returns of Commercial Banks Listed on Amman Stock Exchange(2006-2015), the number of commercial banks listed on the ASE (13) Banks. The study used multiple linear regression and stepwise regression to examine the relationship between independent variables (Dividend Yield Ratio, Earning Yield Ratio, Book-to-Market Ratio), and the dependent variable (Stock Returns for Commercial Banks Listed on ASE).The results revealed that there is no role of the fundamental financial ratios to predict the Stock Returns for the Commercial Banks Listed on ASE for the complete period (2006 – 2015) .Then  we divided the study years for three periods with(3-4 years) to determine predictive role for the ratios within the years of study. only during the period (2009-2011) appeared interpretive & predictive ability to predict stock returns for Commercial Banks by Earning Yield Ratio (EY), then we have examined the role of ratios in each year of the study alone which appeared the Role of the Fundamental Financial Ratios to Predict the Stock Returns for Commercial Banks in Jordan by Earning Yield Ratio (EY) in 2009, and Dividend Yield Ratio (DY) in 2010.Finally we have examined the role of these ratios to predict the Stock Returns separately for each Commercial bank, which appeared interpretive & predictive ability of the Book-to-Market Ratio (B/M) to predict stock returns for five Commercial banks out of thirteen.

Keywords: Dividend Yield Ratio (DY), Earning Yield Ratio (EY), Book-to-Market Ratio (B/M), Commercial Banks, Fundamental Financial Ratios