An Investigation into Returns from Financial Statement Analysis among High Book-to-Market Stocks Kaur Manpreet*, Aggarwal Navdeep, Gupta Mohit School of Business Studies, Punjab Agricultural University, Ludhiana-141004 (Punjab) *Corresponding author's email: gillmanpreet850@gmail.com
JEL Codes: B26, D53, E44, G11, G15 Online published on 20 June, 2017. Abstract The motivation behind this paper was to see if financial statement analysis could be employed by investors to design portfolios of high book-to-market stocks that could help them earn excess returns in Indian context. Using Piotroski (2000) framework which employs a financial statement analysis based F-Score, capable of separating healthy stocks among high book-to-market stocks, and portfolio formation on the basis of the F-Score, we find convincing evidence that financial statement analysis can help investors form profitable portfolios among high book-to-market stocks. We find that portfolios with high F-Score stocks (8 to 9) provide outstanding returns on market adjusted basis. At the same time, portfolios with low F-Score (up to 3) offer poor returns and underperform the markets. Thus a value stock investor could shift his distribution of returns rightwards by investing in portfolios of only high F-Score stocks; simultaneously shorting low F-Score stocks would further amplify the returns. Top Keywords Financial statement analysis, Indian stock market, high book-to-market stocks. Top |