Source: Applied Economics, Volume 38, Number 20, 10 November 2006, pp. 2361-2369(9)
This study investigates the relationship between stock price and earnings-per-share using Korean stock market data. The nonstationarity of the data has been managed. In particular, recently developed panel cointegration techniques are used, which are known to be more powerful than individual cointegration methods. The tests applied to the panel data as a whole showed the cointegration relationship between the stock prices and EPS (earnings-per-share), while tests for the individual stock prices could not detect the cointegration. Therefore, there is now some evidence in support of weak mean-reversion for the PER (Price-Earnings Ratio). However, only mixed evidence was obtained for the hypothesis that the coefficient of EPS to the stock prices is equal to one. In short, stock prices do seem to move with firm fundamentals, in the long-run and on average, but not necessarily at the same rate.
Document Type: Research Article
Affiliations: 1: Chungnam National University, Economics and International Trade, Tae-Jon City 305-764, Republic of Korea 2: Konju National University, Department of International Economics, Kongju, Republic of Korea 3: Hannam University, International Trade, Daejon, Republic of Korea
Publication date: November 10, 2006