Effects of Financial Market Variables on Stock Prices:A Review of the Literature

摘要

Stock market plays a pivotal role in firms’expansion and turns economic growth.In the literature,because of the importance of stock markets to the real economy,the smooth and risk-free operation of the stock market has attracted significant attention.The finance literature contains a large number of studies that examine the stock price behaviour with some emphasis on the determinants of the relationship between the equity prices and the financial market activities.The present study reviews the previous works of the effect of financial market variables and stock price.Five selected financial market variables,market capitalization,earnings per share,price earnings multiples,dividend yield,and trading volume are reviewed in this study.In the past literature,there are the opinions of the positive significant relationship between market capitalization and stock price.To find the relationship between dividend yield and stock price,there are two broad schools of thoughts.Both of the relevance and irrelevance theory of Gordon and Modigliani have the strong evidence in the current literature that keeps on the dilemma and provides the scopes for future research.Price-earnings multiples are analyzed in the past literature by using different variables.Based on that,it is evidenced that price-earnings multiples have a negative significant effect on stock price.The reviewed studies state the cointegrating relationship between the stock price and the trading volume as the trading volume is a source of risk.