Abstract:

In this paper, we attempt to verify the relationship of the firms fundamentals and its stock returns. Price-Earnings ratio (P/E ratio), dividend yield and market capitalization are used as proxies of a firms fundamental values. All series are in a monthly frequency for the period 1995-2011 and were obtained from Thomson Reuters Datastream. We have considered a sample of firms in some particular main sectors listed on the Johannesburg stock market. The sectors in this study are chosen based on the availability of firm-level data. The empirical results indicate that three fundamentals have significantly explained the differences in cross- sectional stock returns in each sector, and such cross-sectional differences also vary across sectors, both within static and dynamic panel data models

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