摘要：The prediction of stock prices movement has always been a concern for investors when they make
investment decisions. Most of stock markets all over the world provide data on price to earnings
ratio (P/E) and price to book value ratio (P/B). How reliable these data are for investment is not
clearly known. This study examines how accounting data of P/E and P/B can predict the stock
prices. The study selects data from 218 firms listed in Indonesian Stock Exchange as sample over
the period 2007-2016 and they are analyzed by multiple linear regression. The study shows that
price to earnings ratio (P/E ratio) had no effect on stock prices for each year and also in all periods,
but price to book value ratio (P/B ratio) had positive effect on stock prices, which means that the
higher the P/B ratio, the more expensive the stock price. The decision of firm management is to
maximize price to book value ratio (P/B ratio) which means to maximize the shareholders’ wealth.
However, on the contrary, investors always seek the lower P/B ratio to get the desirable gains.
Nevertheless, since the statistical analyses show there are many other variables affecting the stock
prices movement, the investors should not rely only on P/B ratio for making investment decisions.
关键词：Price to earnings ratio (P;E)
Price to book value ratio (P;B)
Stock prices
Decision making
Indonesian Stock Exchange
