DETERMINANTS OF SHARE PRICES: EMPIRICAL EVIDENCE FROM PSI 20

Abstract

This paper aims to study the main stock index of the Lisbon Stock Exchange, the PSI 20. We analyze the impact of companies’ specific and external indicators in the determination of the annual variation of their market price between 2015 and 2018. To do so, we use panel data to compute a pooled OLS model with robust standard deviations. Results suggest that business performance variables exert a statistically significant influence on the determination of the annual return on the shares of companies belonging to the PSI 20. Similarly, results suggest that macroeconomic variables are important in determining the profitability of stocks traded in the index. Finally, results also appear to indicate that the stock markets are interconnected since we find statistical evidence between the evolution of the Euro Stoxx 50 stock index and the change in stock prices analyzed. Thus, this research intends to contribute to improve the existing literature on the determinant factors of stock returns of companies in the capital market.