Journal of Modern Accounting and Auditing, November 2018, Vol. 14, No. 11, 597-610 doi: 10.17265/1548-6583/2018.11.002 Effects of Financial Market Variables on Stock Prices: A Review of the Literature Fatima Ruhani, Md. Aminul Islam, Tunku Salha Tunku Ahmad University Malaysia Perlis, Perlis, Malaysia Muhammad Ruhul Quddus Saad Musa Industrial Group, Chittagong, Bangladesh Stock market plays a pivotal role in firms’ expansion and turns economic growth. In the literature, because of the importance of stock markets to the real economy, the smooth and risk-free operation of the stock market has attracted significant attention. The finance literature contains a large number of studies that examine the stock price behaviour with some emphasis on the determinants of the relationship between the equity prices and the financial market activities. The present study reviews the previous works of the effect of financial market variables and stock price. Five selected financial market variables, market capitalization, earnings per share, price earnings multiples, dividend yield, and trading volume are reviewed in this study. In the past literature, there are the opinions of the positive significant relationship between market capitalization and stock price. To find the relationship between dividend yield and stock price, there are two broad schools of thoughts. Both of the relevance and irrelevance theory of Gordon and Modigliani have the strong evidence in the current literature that keeps on the dilemma and provides the scopes for future research. Price-earnings multiples are analyzed in the past literature by using different variables. Based on that, it is evidenced that price-earnings multiples have a negative significant effect on stock price. The reviewed studies state the cointegrating relationship between the stock price and the trading volume as the trading volume is a source of risk. Keywords: market capitalization, dividend yield, Gordon model, Modigliani and Miller model, earnings per share, price earnings multiples, trading volume and stock price Introduction A well-developed financial system is an important pre-requisite for a developed economy. Stock markets enable firms to raise capital by issuing shares and also create an environment where those shares can be traded. Thus stock market plays a pivotal role in firms’ expansion and turns economic growth. In the literature, because of the importance of stock markets to the real economy, the smooth and risk-free operation of the stock market has attracted significant attention. In the empirical capital market research literature, there is a long history Fatima Ruhani, Ph.D., Candidate. School of Business Innovation and Technopreneurship, University Malaysia Perlis, Perlis, Malaysia. Md. Aminul Islam, Dr., School of Business Innovation and Technopreneurship, University Malaysia Perlis, Perlis, Malaysia. Tunku Salha Tunku Ahmad, Dr., School of Business Innovation and Technopreneurship, University Malaysia Perlis, Perlis, Malaysia. Muhammad Ruhul Quddus, Chief Financial Officer, Saad Musa Industrial Group, Chittagong, Bangladesh. DAVID PUBLISHING D