Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/184399 
Year of Publication: 
2016
Citation: 
[Journal:] Comparative Economic Research. Central and Eastern Europe [ISSN:] 2082-6737 [Volume:] 19 [Issue:] 3 [Publisher:] De Gruyter [Place:] Warsaw [Year:] 2016 [Pages:] 93-111
Publisher: 
De Gruyter, Warsaw
Abstract: 
This paper discusses the links between economic growth, corporate earnings and stock returns. Cross-country correlation studies do not confirm the intuitive assumption that higher returns on equities are more likely in the faster-growing countries. The problem can be analysed more deeply by analysing stock returns with respect to the growth of earnings per share (EPS) and changes in valuation (P/E ratio). Within this framework, two types of factors explaining the lack of correlation between GDP growth and stock returns are distinguished. The empirical research on developed and emerging market countries reveals that in the long run stock price returns are driven by companies' earnings, and that the lack of correlation between GDP growth and equity returns is almost fully explained by the divergence between GDP growth and EPS growth. In this article the results of an investigation into this area, based on a sample of post-communist Central and Eastern European countries, are presented and discussed. It was found that in these countries changes in valuation (P/E ratio) appear to play an important role, cancelling the impact of EPS growth on stock returns.
Subjects: 
economic growth
stock returns
earning per share
P/E ratio
Central and Eastern European countries
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Article

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