Separating Winners From Losers Among Low Book To Market Stocks Using Financial Statement Analysis
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| Author | : Partha S. Mohanram |
| Publisher | : |
| Total Pages | : 46 |
| Release | : 2012 |
| Genre | : |
| ISBN | : |
This paper tests whether a strategy based on financial statement analysis of low book-to-market (growth) stocks is successful in differentiating between winners and losers in terms of future stock performance. I create an index (G_SCORE) based on a combination of traditional fundamentals such as earnings and cash flows and measures appropriate for growth firms such as the stability of earnings and growth and the intensity of Ramp;D, capital expenditure and advertising. A strategy based on buying high G_SCORE firms and shorting low G_SCORE firms consistently earns significant excess returns. The results are robust across partitions based on size, stock price, analyst following, exchange listing and prior performance and are not affected by the inclusion or omission of IPO firms. The excess returns persist after controlling for well documented risk and anomaly factors such as momentum, book-to-market, accruals and size. The stock market in general and analysts in particular are much more likely to be positively surprised by firms whose growth oriented fundamentals are strong, indicating that the stock market fails to grasp the future implications of current fundamentals. Further, the results do not support a risk based explanation for the book-to-market effect as the strategy returns positive returns in all years, and firms that ex-ante appear less risky have better future returns. To conclude, one can use a modified fundamental analysis strategy to identify mispricing and earn substantial abnormal returns.
| Author | : Joseph D. Piotroski |
| Publisher | : |
| Total Pages | : |
| Release | : 2013 |
| Genre | : |
| ISBN | : |
This paper examines whether a simple accounting-based fundamental analysis strategy, when applied to a broad portfolio of high book-to-market firms, can shift the distribution of returns earned by an investor. I show that the mean return earned by a high book-to-market investor can be increased by at least 7 percent annually through the selection of financially strong high BM firms while the entire distribution of realized returns is shifted to the right. In addition, an investment strategy that buys expected winners and shorts expected losers generates a 23 percent annual return between 1976 and 1996 and the strategy appears to be robust across time and to controls for alternative investment strategies. Within the portfolio of high BM firms, the benefits to financial statement analysis are concentrated in small and medium sized firms, companies with low share turnover and firms with no analyst following, yet this superior performance is not dependent on purchasing firms with low share prices. A positive relationship between the sign of the initial historical information and both future firm performance and subsequent quarterly earnings announcement reactions suggests that the market initially underreacts to the historical information. In particular, 1/6th of the annual return difference between ex ante strong and weak firms is earned over the four three-day periods surrounding these quarterly earnings announcements. Overall, the evidence suggests that the market does not fully incorporate historical financial information into prices in a timely manner.
| Author | : Hong-Yi Chen |
| Publisher | : |
| Total Pages | : 52 |
| Release | : 2016 |
| Genre | : |
| ISBN | : |
This study examines how fundamental accounting information can be used to supplement technical information to separate momentum winners from losers. We first introduce a ratio of liquidity buy volume to liquidity sell volume (BOS ratio) to proxy the level of information asymmetry for stocks and show that the BOS momentum strategy can enhance the profits of momentum strategy. We further propose a unified framework, produced by incorporating two fundamental indicators -- the FSCORE (Piotroski, 2000) and the GSCORE (Mohanram, 2005) -- into momentum strategy. Empirical results show that the combined investment strategy includes stocks with larger information content that the market cannot reflect in time, and therefore, the combined investment strategy outperforms momentum strategy by generating significantly higher returns.
| Author | : Cheng Few Lee |
| Publisher | : World Scientific |
| Total Pages | : 5053 |
| Release | : 2020-07-30 |
| Genre | : Business & Economics |
| ISBN | : 9811202400 |
This four-volume handbook covers important concepts and tools used in the fields of financial econometrics, mathematics, statistics, and machine learning. Econometric methods have been applied in asset pricing, corporate finance, international finance, options and futures, risk management, and in stress testing for financial institutions. This handbook discusses a variety of econometric methods, including single equation multiple regression, simultaneous equation regression, and panel data analysis, among others. It also covers statistical distributions, such as the binomial and log normal distributions, in light of their applications to portfolio theory and asset management in addition to their use in research regarding options and futures contracts.In both theory and methodology, we need to rely upon mathematics, which includes linear algebra, geometry, differential equations, Stochastic differential equation (Ito calculus), optimization, constrained optimization, and others. These forms of mathematics have been used to derive capital market line, security market line (capital asset pricing model), option pricing model, portfolio analysis, and others.In recent times, an increased importance has been given to computer technology in financial research. Different computer languages and programming techniques are important tools for empirical research in finance. Hence, simulation, machine learning, big data, and financial payments are explored in this handbook.Led by Distinguished Professor Cheng Few Lee from Rutgers University, this multi-volume work integrates theoretical, methodological, and practical issues based on his years of academic and industry experience.
| Author | : H. Kent Baker |
| Publisher | : John Wiley & Sons |
| Total Pages | : 448 |
| Release | : 2020-09-01 |
| Genre | : Business & Economics |
| ISBN | : 1119632935 |
Sharpen your understanding of the financial markets with this incisive volume Equity Markets, Valuation, and Analysis brings together many of the leading practitioner and academic voices in finance to produce a comprehensive and empirical examination of equity markets. Masterfully written and edited by experts in the field, Equity Markets, Valuation, and Analysis introduces the basic concepts and applications that govern the area before moving on to increasingly intricate treatments of sub-fields and market trends. The book includes in-depth coverage of subjects including: · The latest trends and research from across the globe · The controversial issues facing the field of valuation and the future outlook for the field · Empirical evidence and research on equity markets · How investment professionals analyze and manage equity portfolios This book balances its comprehensive discussion of the empirical foundations of equity markets with the perspectives of financial experts. It is ideal for professional investors, financial analysts, and undergraduate and graduate students in finance.
| Author | : T. RAMAYAH; PUI MUN LEE; EDWARD H. K. NG. |
| Publisher | : Springer Nature |
| Total Pages | : 681 |
| Release | : 2024 |
| Genre | : |
| ISBN | : 2384762575 |
| Author | : H. Kent Baker |
| Publisher | : John Wiley & Sons |
| Total Pages | : 533 |
| Release | : 2011-05-04 |
| Genre | : Business & Economics |
| ISBN | : 1118044568 |
An essential guide to valuation techniques and financial analysis With the collapse of the economy and financial systems, many institutions are reevaluating what they are willing to spend money on. Project valuation is key to both cost effectiveness measures and shareholder value. The purpose of this book is to provide a comprehensive examination of critical capital budgeting topics. Coverage extends from discussing basic concepts, principles, and techniques to their application to increasingly complex, real-world situations. Throughout, the book emphasizes how financially sound capital budgeting facilitates the process of value creation and discusses why various theories make sense and how firms can use them to solve problems and create wealth. Offers a strategic focus on the application of various techniques and approaches related to a firm's overall strategy Provides coverage of international topics based on the premise that managers should view business from a global perspective Emphasizes the importance of using real options Comprised of contributed chapters from both experienced professionals and academics, Capital Budgeting Valuation offers a variety of perspectives and a rich interplay of ideas related to this important financial discipline.
| Author | : Leonard Zacks |
| Publisher | : John Wiley & Sons |
| Total Pages | : 352 |
| Release | : 2011-10-04 |
| Genre | : Business & Economics |
| ISBN | : 0470905905 |
Investment pioneer Len Zacks presents the latest academic research on how to beat the market using equity anomalies The Handbook of Equity Market Anomalies organizes and summarizes research carried out by hundreds of finance and accounting professors over the last twenty years to identify and measure equity market inefficiencies and provides self-directed individual investors with a framework for incorporating the results of this research into their own investment processes. Edited by Len Zacks, CEO of Zacks Investment Research, and written by leading professors who have performed groundbreaking research on specific anomalies, this book succinctly summarizes the most important anomalies that savvy investors have used for decades to beat the market. Some of the anomalies addressed include the accrual anomaly, net stock anomalies, fundamental anomalies, estimate revisions, changes in and levels of broker recommendations, earnings-per-share surprises, insider trading, price momentum and technical analysis, value and size anomalies, and several seasonal anomalies. This reliable resource also provides insights on how to best use the various anomalies in both market neutral and in long investor portfolios. A treasure trove of investment research and wisdom, the book will save you literally thousands of hours by distilling the essence of twenty years of academic research into eleven clear chapters and providing the framework and conviction to develop market-beating strategies. Strips the academic jargon from the research and highlights the actual returns generated by the anomalies, and documented in the academic literature Provides a theoretical framework within which to understand the concepts of risk adjusted returns and market inefficiencies Anomalies are selected by Len Zacks, a pioneer in the field of investing As the founder of Zacks Investment Research, Len Zacks pioneered the concept of the earnings-per-share surprise in 1982 and developed the Zacks Rank, one of the first anomaly-based stock selection tools. Today, his firm manages U.S. equities for individual and institutional investors and provides investment software and investment data to all types of investors. Now, with his new book, he shows you what it takes to build a quant process to outperform an index based on academically documented market inefficiencies and anomalies.
| Author | : George Athanassakos |
| Publisher | : |
| Total Pages | : |
| Release | : 2014 |
| Genre | : |
| ISBN | : |
The purpose of this paper is twofold: (a) to determine whether there is value premium in our sample of US stocks for the period May 1, 1969-April 30, 2011; and (b) to examine whether an additional screening to the first step of the value investing process can be employed to separate the outperforming value and growth stocks from the underperforming ones. In this paper, we document the following: We find a consistently strong and pervasive value premium over the sample period. We show that there are distinct differences between US exchanges which means that papers that aggregate all US exchanges under one umbrella may dilute findings and bias conclusions. The stocks of AMEX firms, high business risk firms and firms that report extraordinary items experience worse returns than the rest of the US stocks in our sample. We find that P/E based sortings produce better overall results than sortings based on P/B. We are able to construct a composite score indicator (SCORE), combining various fundamental and market metrics, which enable us not only to separate the winners from the losers among value and growth stocks, but also to predict future returns of value and growth stocks. SCORE portfolios give better results for sortings based on P/E and when we employed a cross-section-time series medians approach. Results remain robust for a time period out of sample, for negative P/E or P/B ratio firms and for the firms that were excluded from SCORE-based performance, namely, AMEX stocks, stocks with high business risk and firms that reported extraordinary items the year before. Finally, we provide evidence that the return of a portfolio strategy that buys (sells) stocks that rank low (high) in the composite score indicator has significant explanatory power in an asset pricing model framework and that such a strategy earns statistically significant positive returns.
| Author | : William A. Barnett |
| Publisher | : Emerald Group Publishing |
| Total Pages | : 205 |
| Release | : 2023-04-10 |
| Genre | : Business & Economics |
| ISBN | : 1804557609 |
This volume of the International Symposia in Economic Theory and Econometrics explores the latest economic and financial developments in Africa and Asia.
