Fundamentals and stock returns on the Warsaw Stock Exchange. The application of panel data models

This study examines the relationship between the future stock returns and the fundamental indices for companies listed on the Warsaw Stock Exchange in Poland. The fundamental exogenous variables were constructed following the previous research of Lev and Thiagarajan [1993], Abarbanell and Bushee [1997], Piotroski [2000] and Mohanram [2004], while the endogenous variable is defined as a one-year-ahead stock return. Empirical analysis based on a panel data model for 187 companies in years 1999 – 2003 finds that the future stock returns are significantly related to three fundamental variables, i.e. gross margin, sales and administrative expenses and return on assets. Stock returns are also strongly associated with price-earnings ratio. Most of the relationships do no longer hold in case of short-term future stock returns.