Stock Returns Indicator: Case of Tadawul

The key objective of this research is to identify the most suitable financial variable indicator of future stock returns. Therefore, four financial variables are analysed to determine which variable leads to the highest stock returns; book to market value of equity (BMVE), sales to price (SP), debt equity (DE) and firm size (FS). A sample of 30 listed companies in KSA stock market were randomly selected from five industries. Regression analysis is applied to scrutinise the correlation between stock returns and the selected financial variables. The key finding of this research is that the firm size (size effect) is a useful explanation for stock returns in the KSA stock market. Our conclusion is similar to Garza-Gomez et al.'s (1998) study of Japanese stock market data, Senthilkumar's (2009) study on a selected Indian stock market, Xing Hu et al.'s (2019) investigation of size effect on Chinese stock returns and (Banz, 1981).