Explaining the Cross Section of Stock Returns: A Comparative Study of the United States and Turkey

Stock returns are affected by various accounting information. Based on literature review, we identify three independent variables: P/E ratio (price to earnings ratio), P/B ratio (price to book ratio), and D/E ratio (debt to equity ratio). Focusing on these variables, this research aims to provide significant evidence to assess the impacts of these independent variables on stock returns. We have collected the necessary data of companies listed in the US and Turkey markets, and ended up with 452 observations from Turkey and 588 observations from the United States. We calculate annual stock returns based on the average of the past 12 monthly returns for each company. We use the panel data method to effectively assess the relationship between variables. This study suggests that the explanatory power of independent variables is relatively high and statistically significant in explaning the cross-section of stock returns in the United States; however, it is not in Turkey.