The use of error components models in business finance. : a review article and an application

Abstract

This study applies and tests several stock valuation models of companies whose shares are traded in
the Athens Stock Exchange. The relevant equations are estimated for the five major sectors of the Athens
Stock Exchange (Banks, Textiles, Foods, Buildings, Commercials) using a specification which combines
cross sectional and time series data. This is the Error Components Model.
In view of the results obtained the most important variables across sectors appear to be dividends
followed by retained earnings. The contribution of the remainder of the independent variables has been
mixed.