The Relationship between Fundamental Variables and Stock Returns in the Oil and Gas Companies of Pakistan

Abstract

This paper investigates the relationship between annual stock returns, book to market ratio, dividend yield ratio and price to earnings ratio. A sample of twelve oil and gas sector companies listed on the Pakistan Stock Exchange (PSX) were selected. The annual average values for the suggested variables from 2008 to 2017 were obtained and calculated. The panel data regression method using random effect model was applied. The result of the paper show that only book to market ratio has positive correlation and has a significant impact on the stock returns and has the ability to predict future returns for investors. While, the other ratios, like, dividend yields, price to earnings ratio have a positive correlation but insignificant impact on the stock returns. Findings of this study suggest that investors can use and apply the investment criteria that utilizes book to market ratio to earn returns on their investment and minimize the risk on the investments.