THE ROLE OF FINANCIAL RATIOS IN EXPLAINING THE STOCK PRICES: AN EXAMPLE OF THE COMPANIES IN BIST INDUSTRY INDEX

Abstract

Financial ratios are widely used by both scholars and business practitioners to understand business dynamics. In this study, it is aimed to reveal which ratios are related to stock prices by preventing problems related to overlapping information between ratios and by determining the model that contains the most information with the lowest possible number of ratios. In the study, the most successful model was determined by using correlation, multicollinearity, backward stepwise elimination method and fixed effects regression estimation method, respectively. According to the findings, 73% of the changes in stock prices could be explained by 11 different ratios. Findings are important to give an idea of which financial ratios should be primarily considered.