Price Randomness, Fundamental Factors, and Stock Market Contrarian Strategy: Further Evidence on Malaysian Stock Market

Abstract

This paper investigates the price randomness, fundamental factors, and relationships of fundamental with stock returns for all stocks in the Kuala Lumpur Stock Exchange in three stages from 1977 to December 1999. The ten fundamental factors encompass debi-asset rato, debi-equity book to market value ratio, dividend yield, payout rato, price to earning ratio, earning per share, ‘growth, asset growth, and market capitalisation. The multiple-factor model revealed that both tal factors and beta could explain up to 72 percent of the variability in stock returns. tly, the factors of market capitalisation and beta had been incorporated in implementing the investment strategy. The returns reversal of th loser portfolio are more significant and apparent the smaller firms than the larger firms once the market capitalisation factor is controlled for. The gained from the investment strategy after control for market capitalisation and beta factors remain ve.