Analysis of the relationship between price earnings ratio and stock return: BIST30 index application

For individual and institutional investors who invest their savings by investing in stocks, determining the future values of stocks is of great importance. The methods used in share valuation are examined within the scope of fundamental analysis and technical analysis. Fundamental analysis appears to be a widely used method b price / earnings ratio emerges as a widely used method y investors, due to its simplicity and ease of calculation. Within the scope of the study, it is primarily aimed to explain the methods of stock valuation. In the second stage, studies on the price / earnings ratio in the literature are included. In the last stage, the stock prices and price / earnings ratio of the companies included in the BIST30 were analyzed, and causality analysis, impulse-response functions and variance decomposition were used in the research. In this context, together with the price / earnings ratio, the effect of the dividend yield rate, which is another rate preferred by the investors, on the prices of stocks and the mutual relations of the two rates are also examined. Additionally, the responses of stock prices to changes in the price / earnings ratio and the relationships between variables are analyzed on the basis of main sectors. As a result of this study, it has been found that the price / earnings ratio is generally effective on stock prices and this effect is higher than the dividend yield ratio.