Persistence of Abnormal Earnings and Stock Valuation: Applied to Saudi Arabia Adnan Fadel Abo Al Haija Finance Department, Alfaisal University ABSTRACT This study aims at analyzing the relationship between real performances of firms in the product market with their financial performance in stock markets. This relationship has been investigated theoretically and empirically by linking persistence of abnormal earnings with market valuation in the long run using data of Saudi Arabian public shareholding companies listed in the Saudi stock market. It is found that persistence of abnormal earnings is one of the major determinant factors of market valuation. It is found also that dynamic patterns of abnormal earnings over time are essential factors in shaping growth rates and levels of market-to-book ratios. Keywords: Abnormal earnings; persistence; stock valuation; Saudi Arabia