FACTORS INFLUENCING STOCK RETURNS: EVIDENCE FROM NATIONAL STOCK EXCHANGE, INDIA

Stock prices have always been a subject of intrigue. Researchers have strived to find the factors which influence stock prices thereby returns. Fama and French constructed a 3 factor model which has been applied across the globe to test the validity of the model. The results have varied and have led to inclusion of other variables also in the model. In recent times validity of Fama-French model has been questioned. Also researchers have generally focused on market based factors to examine the relationship. Our study assesses the impact of firm specific fundamental factors, total assets (size effect), debt-equity ratio, current ratio, return on equity and dividend yield apart from market based factors, beta and price to book value ratio (value effect) on the stock returns. We have examined 198 stocks listed on National Stock Exchange (NSE, India). Panel data method is used for the study. Beta and value effect do explain the variation in stock returns. However, size effect and leverage have been found to be insignificant. In addition, we have found that return on equity and dividend yield also significantly affect the stock returns. Our study, thus, concludes that corporate factors, like return on equity and dividend yield,# also influence the stock returns apart from the market based factors like beta and value effect