Economic and Financial Determinants of Pharmaceutical Stock Returns: Evidence from Panel Data Analysis.

Background: Fundamental analysis has gained significant attention among capital markets researchers and investors in recent years. In the fundamental analysis method, it is assumed that stock returns are not solely determined by the stock market; major effects originate from the overall economy, industry situation, and company conditions. This research aimed to investigate the relationship between financial fundamentals, stock returns, and investment risk. Methods: The study was a retrospective analytical study. The financial data of 20 pharmaceutical firms listed on the Tehran Stock Exchange from April 2011 to March 2021 were assessed by panel data analysis in Eviews to evaluate the relation between fundamentals and risk and return. Results: The results demonstrated that 23 and 35 percent of changes in stock return in the same year and the following year can be explained by seven significant variables, including cash ratio, asset turnover, inventory turnover period, debt-equity ratio, quick ratio, total inflation, and healthcare inflation. In this analysis, we also assessed the impact of fundamental variables on investment risk. The results showed that six significant variables, including gross profit margin, debt-asset ratio, quick ratio, interest coverage rate, total inflation, and healthcare inflation, can explain 35 percent and 30 percent of investment risk for the same year and the following year, respectively. Conclusion: The fundamentals and macroeconomic factors can partially predict the risk and return of pharmaceutical companies.