SUMMARY
This study investigates the empirical relations between stock returns and fundamental variables of the Saudi emerging stock market from 1990 to 2004. Annual stock returns are positively related to debt to equity, earnings price ratios and negatively related to beta, book-market ratio, sales-price ratio and firm size. The book-market and sales-price ratios are more efficient indicators of value than the earnings-price ratio, and the debt-equity ratio is a more reliable proxy for risk than beta. The relationship between stock returns and fundamental variables have been studied extensively in US and recently in other countries. The Saudi stock market started getting global attention in early 2003 because of increased capitalization, high liquidity and return on investments. Its importance in the gulf region is emphasized because it is the largest stock market in the Gulf Countries and attracts foreign investments since the Kingdom opened the market to foreign investors in 2006. Keywords: fundamental analysis, emerging market, capital market, stock returns