Influence of Price-Earnings Ratio on Stock Market Return: The Mediating Role of Investor Sentiment in Nigeria as an Emerging Market

The study investigates the influence of price-earnings ratio on stock market return and focus of investor sentiment as the mediating variable in Nigeria. Using time series data from 2001 to 2021, the study employed Nigerian All Share Index (ASI) as the proxy of stock market return and investor sentiment was captured through share price movement in bullish and bearish market regime. The study adopted PMG/ARDL model to analyze long run relationship between variables. Findings revealed significant positive long run relationship between price-earnings ratio and stock market return in Nigeria. Moreover, the study demonstrates that investor sentiment, as measured by share price movement played a significant role in the relationship. The findings provided valuable insights for Nigerian capital market regulators, investors, analyst and policymakers in understanding and predicting stock market movement. The study underscored the importance of considering price-earnings ratio as a market valuation matrix and investor sentiment in assessing and forecasting stock market performance in Nigeria.