Price to Cash Flow Ratio and Return Relationship
Chapter from the book:
Buğan,
M.
F.
&
Tuna,
İ.
(eds.)
2023.
Evolution of Financial Markets IV.
Synopsis
Stock investors follow many different indicators depending on their return expectations. Financial ratios, which are very practical to calculate, are frequently used both in investment decisions and in the literature. One of the prominent financial ratios related to return is the price cash flow ratio. In addition, investors who prioritize diversification depending on their risk tolerance may prefer to invest in different sectors instead of direct equities. Financial ratios are not only stock-specific indicators. Other ratios such as price cash flow ratio can be calculated on a sector basis and used in investment decisions. In this context, this study aims to determine the relationship between price cash flow ratio and return on a sectoral basis in the Turkish stock market. For this purpose, correlations between price cash flow ratios and returns in 37 BIST sectors between January 2007 and November 2023 were first calculated, and then the causality relationship was tested with the Hacker and Hatemi-J (2012) bootstrap causality test. The results show that there is no specific main sector that has a significant relationship between price cash flow ratio and return on the basis of BIST, but there is a relationship in certain sub-sectors such as trade and finance.
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Copyright (c) 2023 Mehmet Fatih Buğan, İsmail Tuna; Muhammet Fatih Canbaz, Mustafa Canbaz, Meltem Keskin, Hüseyin Özdemir, İnan Gidiş, Arzu Özmerdivanlı, Ayşe Yıldız, İsmail Tuna, Emine Kaya, Ömer Kaya, Ekrem Meriç, Burcu Buyuran, Fatih Temizel, Yusuf Volkan Baysal, Hatice Elanur Kaplan, Metin Kılıç, Serap Kamışlı