Enhancement of value investing strategies based on financial statement variables: the German evidence

Pätäri, Eero; Leivo, Timo H.; Hulkkonen, Janne; Honkapuro, Samuli

doi:10.1007/s11156-017-0689-y

Cited by 7 publications

(16 citation statements)

References 94 publications

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“…In line with Piotroski's (2000) seminal study, Pätäri et al (2018c) use an FSCORE of 8 as a lower boundary to distinguish high-FSCORE stocks. This results in relatively narrow portfolios during the holding periods following such portfolioreformation points, at which the total number of high-FSCORE stocks in the tertile portfolio formed on the primary criterion was low.…”

Section: Introductionmentioning

confidence: 88%

“…In addition, the price impact of higher-volume market orders is stronger among small-cap stocks, thereby hampering the real-world implementability of such investment strategies, whose performance is outstandingly better in the small-cap stock universe than in the larger-cap universe (Soares and Stark 2009). Recently, Pätäri et al (2018c) have examined the added value of using Piotroski's FSCORE as a supplementary long-only selection criterion alongside the 12 primary criteria that were based on previously documented accounting anomalies (Most of the employed primary criteria were based on value anomalies). Their results from the German stock market over the period [2000][2001][2002][2003][2004][2005][2006][2007][2008][2009][2010][2011][2012][2013][2014][2015] show that the performance boost from the inclusion of the high-FSCORE threshold is remarkable for not only the trading portfolio of high book-to-price (B/P) stocks, but also for all the other 11 anomaly-based trading portfolios being examined.…”

Section: Introductionmentioning

confidence: 99%

“…In addition, the inclusion of the high-FSCORE threshold alongside a primary criterion tended to decrease the smallcap exposure of the long-only portfolios, which is in line with recent U.S. evidence provided by Novy-Marx (2014). However, Pätäri et al (2018c) do not take transaction costs into account. In addition, they use a very low market-cap threshold of €5 million to exclude only the tiniest microcap stocks.…”

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Can the FSCORE add value to anomaly-based portfolios? A reality check in the German stock market

Pätäri

Leivo

Ahmed

2021

Financ Mark Portf Manag

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This paper examines the added value of using financial statement information, particularly that of Piotroski’s (J Account Res 38:1, 2000. https://doi.org/10.2307/2672906) FSCORE, for equity portfolio selection in the German stock market in a realistic research setting in which the critique against the implementability of FSCORE-based trading strategies is taken into account. We show that the performance of annually rebalanced long-only portfolios formed on any of the examined 12 accounting-based primary criteria improves by including the FSCORE as a supplementary criterion. Our study is the first to show that although the FSCORE boost is strongest for the 1-year holding period length, it also holds, on average, for the 3-year holding period. The use of a 3-year updating frequency is particularly beneficial for the low-accrual portfolio that—when supplemented with the high-FSCORE threshold—generates the best overall performance among all 75 portfolios examined. Moreover, we show that a high FSCORE is also an efficient stand-alone criterion for long-only portfolio formation.

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Section: Introductionmentioning

confidence: 88%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Can the FSCORE add value to anomaly-based portfolios? A reality check in the German stock market

Pätäri

Leivo

Ahmed

2021

Financ Mark Portf Manag

Self Cite

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“…The value effect, that is the outperformance of stocks with high book-to-market equity ratios ("value stocks") relative to stocks with low book-to-market equity ratios ("growth stocks"), is one of the oldest investment paradigms which can be traced back to the classic book by Graham and Dodd (1934). The existence of the value premium has been widely documented in stock markets around the world (e.g., Capaul et al 1993;French 1998, 2012;Bauman et al 2001;Griffin 2002;Bartov and Kim 2004;Asness et al 2013;Cakici et al 2016;Pätäri et al 2018), and the standard empirical asset pricing models of French (1993, 2015) have been designed to capture the value pattern in stock returns. 1 The momentum effect, in turn, refers to the tendency of stocks with high short-term past returns ("winners") to outperform stocks with low past returns ("losers").…”

Section: Introductionmentioning

confidence: 99%

Another look at value and momentum: volatility spillovers

Grobys

Vähämaa

2020

Rev Quant Finan Acc

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This paper examines volatility interdependencies between value and momentum returns. Using U.S. data over the period 1926-2015, we document persistent periods of low and high volatility spillovers between value and momentum strategies. Moreover, we find that the intensity of the volatility spillovers may change substantially in very short periods of time and that these shifts in spillover intensity can be linked to prominent economic events and financial market turmoil. Our results further demonstrate that value returns increase and momentum returns decrease monotonically with increasing volatility spillovers between the two strategies. Given this linkage between spillover intensity and returns, we propose a simple trading strategy which utilizes a volatility spillover index for allocating funds between value and momentum portfolios. The proposed trading strategy outperforms value and momentum strategies and generates payoffs that are not subject to option-like behavior.Keywords Asset pricing · Value effect · Momentum effect · Volatility spillovers · Volatility spillover index JEL Classification G11 · G12 · G14

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“…The value effect, that is the outperformance of stocks with high book-to-market equity ratios ("value stocks") relative to stocks with low book-to-market equity ratios ("growth stocks"), is one of the oldest investment paradigms which can be traced back to the classic book by Graham and Dodd (1934). The existence of the value premium has been widely documented in stock markets around the world (e.g., Capaul et al 1993;French 1998, 2012;Bauman et al 2001;Griffin 2002; Bartov and Kim 2004;Asness et al 2013;Cakici et al 2016;Pätäri et al 2018), and the standard empirical asset pricing models of French (1993, 2015) have been designed to capture the value pattern in stock returns. 1 The momentum effect, in turn, refers to the tendency of stocks with high short-term past returns ("winners") to outperform stocks with low past returns ("losers").…”

Section: Introductionmentioning

confidence: 99%