Valuation Ratios and Stock Price Predictability: Comparison Between Short Term and Long Term Horizon (Case Study of Manufacturing Companies at Jakarta Stock Exchange Year 1994-2004)

Abstract

Using annual data of 44 manufacturing companies for 1995-2004 and quarterly data of 34 manufacturing companies for the year 2004, this paper re examines the predictability of stock price based on financial ratios. In line with extant literature, we find significance evidence that the Price Earnings Ratios and Dividend Yield have significant relationship with the Abnormal Returns, but they have different characteristics in short term period and long term period. Dividend Yield has more influence on Abnormal Returns in long term period rather than in short term period. But Price Earnings Ratio has more influence on Abnormal Returns in short term period rather than in long term period.