Abstract:
The aim of this paper is to investigate the relationship between valuation ratios and
stock return of listed Companies in Colombo Stock Exchange. Valuation ratios
include Dividend Yield, Dividend Payout and Earning Yield are considered to
investigate the relationship. Additionally the relationship between Earning Yield and
Dividend Yield were investigated. Data were collected from a sample of 25
companies at the Colombo Stock Exchange. The time frame is the period of 2006 to
2010 and Descriptive, Correlation and Regression analysis were implemented to
analyze the data.
According to correlation analysis, researcher found that there is a negative
relationship between valuation ratios and stock return in CSE. According to the
results of the regression analysis, the researcher found that there is a small impact of
the selected ratios with the stock return. However, there was always negative effect
of dividend yield on the stock return. It was revealed that the Dividend Payout and
earning yield are the most relatively important earnings ratio for the investors of the
Colombo Stock Exchange. In addition, there was a strong positive relationship
between earning yield and the dividend yield of the selected companies.
This type of research will helpful for the investors to make their effective and efficient
economic decisions
