CAPITAL GAIN PREDICTABILITY USING FINANCIAL RATIOS: A CASE STUDY OFAGRIBUSINESS STOCKS

Abstract

The financial ratios are the key indicators to assess the strength and weaknesses of company performance. In the stock market, capital gain plays a pivotal role to attract investors in the value of a firm’s stock investment, while the stock of agribusiness firms becomes a potential outlook to be investigated. The study aims to describe the predictability of capital gain by using financial ratios, namely dividend yield (DY), earnings yield (EY), a book to market (BM), debt-equity ratio (DER), and return on asset (ROA). The panel data model, generalized least square, ordinary least square, is applied to estimate the predictive regression both in separated and combined models. The result discloses that the majority of individual financial ratios can predict future capital gain on agribusiness stock except for the debt-equity ratio (DER). While the book to market value (BM) has the highest predictive power among other variables. Moreover, the predictability of capital gain is considerably enhanced by applying the combination of financial ratios.

Keywords

• agro-industrial sector
• capital market
• econometrics