Determining Ability of Operating Income and Its Changes in Explaining and Predicting Operating Income and Stock Returns: the Case of Tehran Stock Exchange

Abstract

In this study the ability of accounting earnings on predicting and explaining the stock returns of Tehran Stock Exchange has been investigated. The goal of this research is to determine whether accounting earning number has considerable role on predicting and explaining the stock returns and revealing capital market’s response to information, after controlling for risk and discount rate indicators. Thus 41 corporations have been selected over 1375-1389. Selected data for analyzing are based on time series.Selected operating income and return have been aggregated through ratio of individualcorporation’s market values on total sample market values and regression analysis has been used for examining the hypothsises. Results indicate that current operating income along with book to equity ratio is positive predictors of future return. Moreover, changes in operating income have suitable ability in explaning return around earning’s changes announcement.

Keywords

• operating income
• stock return
• risk
• discount rate