For FCF yield (FCF Y), the negative

For FCF yield (FCF Y), the negative sign could be explained by the free cash flow hypothesis(Jensen, 1986), which states that a higher free cash flow for a given price signals higher agencycosts. The positive sign of net debt to equity implies that higher leverage increases firm value,as long as leverage is not unreasonably and unsustainably high (DEQ, for models 7 and 8, isstatistically significant at 5%, unlike all coefficients/models, significant at 1%).12Finally, thesigns of EPS growth (EPS g) and Sales growth (Sales g) are positive, as expected given the directpressure managers have on these metrics every quarter they disclosure financial statements.Overall, these results provide evidence that the most preferred financial ratios used in practiceby equity analysts following firms on the MSE have predictive power; with the signs of coefficientsas predicted by financial theory. The marginal predictive power of these models (marginal to anasset pricing model), as expected, is not very high (model 0, in Table 5, provides results of CAPMand size as control variable). It would not be possible to have a model with financial ratios havinga high explanatory power, which would be the main purpose of asset pricing models, as stockprice changes are very noisy.