The Fogginess of Saudi Stock Market Crash 2006 and the Effect of Firm’s Financial Performance.

Abstract

The purpose of the study is to examine the impact of Saudi firm’s financial performance, and whether the Saudi stock market differentiates between good and bad firms, during stock market crash. The idea of the study followed from the Saudi stock market worst crash, which started on the 25th of February 2006. The statistical relationship between stock price (volume) changes, and ten financial performance indicators was examined. Two statistical models were developed and tested. The study found a linear relationship that may explain the price, but not volume, changes during the Saudi stock market crash 2006, based on some firm’s specific financial performance indicators. It was concluded that trading Saudi shares higher than their firm-based financial performance might cause the 2006 crash in the Saudi stock market.