Screen winners from losers using simple fundamental analysis in the Pacific-Basin stock markets

Quality investing in Asian stock markets

“…We show that FSCORE alone has predictability of the subsequent stock returns in Asian markets. Our findings are different from previous studies that FSCORE can distinguish winners from losers conditional on the sorts by book‐to‐market ratio (Piotroski, ; Piotroski and So, ; Ng and Shen, ). Our paper is the first paper to explore the institutional demand on the stock quality in the international markets.…”

“…The further study by Piotroski and So () shows that FSCORE can systematically predict subsequent stock performance in all categories of firms sorted by book to market, including value stocks, middle stocks, and glamour stocks. International studies also confirm that FSCORE is an effective signal to measure a firm's fundamentals; and, it generates significant returns in Europe (Walkshausl, ), Australia (Hyde, ) and Asia Pacific countries (Ng and Shen, ). These studies indicate that in order to yield abnormal returns, FSCORE should be combined with book to market, which is a joint strategy of quality and value.…”

“…FSCORE is a composite measure on financial strength of a firm, based on three dimensions: profitability, leverage and liquidity, and operating efficiency. The previous studies document that FSCORE can successfully screen winners from losers in value stocks (Piotroski, ; Piotroski and So, ; Hyde, ; Ng and Shen, ); however, there is limited research on whether firms with strong financial strength can outperform the firms with weak financial strength in all stocks. Novy‐Marx () finds that the ratio of gross profit to assets (GP) has strong predictive power on stock return.…”

Piotroski’s FSCORE: international evidence

“…Besides, a recently growing strand of the literature also documents the usefulness of FSCORE in diverse applications outside the USA. Consistent with Piotroski and So (2012), Ng and Shen (2016) reveal that FSCORE helps to ex ante separate subsequent winners from losers among Asian value and growth firms. Walkshäusl (2017Walkshäusl ( , 2019 finds supportive evidence that the FSCORE also adds to our understanding of the value and momentum effects in European stock returns that can be traced back to investors' expectation errors concerning firm fundamentals.…”

“…In the spirit of Piotroski's (2000) original study, Tikkanen and Äijö (2018) show that the performance of European long-only value investing strategies that employ valuation ratios other than book-to-market for the classification of value stocks, such as the earnings-to-price ratio, dividend yield, and enterprise multiple, can be significantly improved by incorporating the information contained in FSCORE. Piotroski and So (2012), Ng and Shen (2016), and Walkshäusl (2017) document for the USA, seven Asia-Pacific markets, and Europe that there exists a strong performancerelated interaction between FSCORE and the full spectrum of book-to-market ratios, i.e., value and growth stocks. They find that the positive value-growth returns are concentrated among value stocks with high FSCORES and growth stocks with low FSCORES, but absent among value stocks with low FSCORES and growth stocks with high FSCORES.…”