Indian Journal of Economics and Development: Forthcoming Issue

An Investigation into Returns from Financial Statement Analysis among High Book-to-Market Stocks

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Manpreet Kaur*, Navdeep Aggarwal and Mohit Gupta

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Indian Journal of Economics and Development
Year : 2017, Volume : 13, Issue : 2
First page : ( 353) Last page : ( 358)
Print ISSN : 2277-5412. Online ISSN : 2322-0430.
Article DOI : 10.5958/2322-0430.2017.00187.1

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.

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