Abarbanell and Bushee (1998)Abarbanell, J., & Bushee, B. (1998). Abnormal returns to a fundamental analysis strategy. The Accounting Review, 73(1), 19-45.
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Valuation theory: Fundamental analysis should yield abnormal returns because earnings are realized in the future if contemporaneous stock price reactions to the signals are incomplete |
Future abnormal return |
Contemporaneous changes in earnings and accounting fundamentals |
U.S. |
Annual return of 13.2% using a fundamental strategy based on L-scores. Most of the returns are generated by subsequent earnings announcements. |
Aggarwal and Gupta (2009)Aggarwal, N., & Gupta, M. (2009). Do high book-to-market stocks offer returns to fundamental analysis in India? Decision, 36(2), 155-175.
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Follows Piotroski (2000)Piotroski, J. (2000). Value investing: The use of historical financial statement information to separate winners from losers. Journal of Accounting Research, 38(3), 1-41. http://dx.doi.org/10.2307/2672906. http://dx.doi.org/10.2307/2672906...
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Future returns |
Accounting fundamentals, BM ratio, size, accruals |
India |
The Piotroski strategy can separate winners from losers for two-year returns after portfolio formation. It generates 98.6% annual returns for portfolios with high F-scores and 31.3% annual returns for portfolios with low F-scores. |
Al-Shubiri (2011)Al-Shubiri, F. N. (2011). Analyze the determinants of market stock price movements: An empirical study of Jordanian commercial banks. International Journal of Business and Management, 5(10), 137-147.
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Valuation theory and fundamental analysis |
Share prices |
Accounting fundamentals |
Jordan (banks) |
Using multiple regression analysis, the author finds highly positive, significant relationships between the market price of the stock and net asset value per share and the market price of the stock divided by the percentage of gross domestic product, as well as a negative, significant relationship between inflation and the lending interest rate. |
Amira and Hafssa (2021)Amira, T., & Hafssa, Y. (2021). Financial risk of indebted companies: A study of the impact of financial structure and the earnings growth. Journal of Accounting and Finance, 21(5), 63-74.
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Debt and beta relationship |
Beta (Y1) |
Debt (X1) and earnings growth rate (X2) |
Morocco |
The more indebted a company is (X1), the higher its beta (Y1) would be. The higher the earnings growth rate (X2), the higher the beta (Y1) would be. The panel shows total heterogeneity for the relationship between Y1 and X1, and an individual effect model for the relationship between Y1 and X2. |
Amor-Tapia and Tascón (2016)Amor-Tapia, B., & Tascón, M. (2016). Separating winners from losers: Composite indicators based on fundamentals in the European context. Journal of Economics and Finance, 66(1), 70-94.
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Valuation theory |
Future returns |
FSCORE, FSCORE2, GSCORE, PEIS |
U.S. & Europe |
In four European markets, a hedge strategy that goes long in strong firms (high fundamentals) and short in weak firms (low fundamentals) does not reward investors with one-year ahead buy-and-hold abnormal returns in two measures, Xue and Zhang (2011)'sXue, Y., & Zhang, M. (2011). Fundamental analysis, institutional investment, and limits to arbitrage. Journal of Business Finance & Accounting, 38(9-10), 1156-1183. http://dx.doi.org/10.1111/j.1468-5957.2011.02265.x. http://dx.doi.org/10.1111/j.1468-5957.20...
FSCORE2 and Wahlen and Wieland's PEIS. |
Bartram and Grinblatt (2021)Bartram, S., & Grinblatt, M. (2021). Global market inefficiencies. Journal of Financial Economics, 139(1), 234-259. http://dx.doi.org/10.1016/j.jfineco.2020.07.011. http://dx.doi.org/10.1016/j.jfineco.2020...
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Mispricing and returns |
Portfolio returns |
Mispricing signal, market capitalization, book/market, beta, accruals, gross profitability, prior returns |
Global (with and without U.S.) |
Stocks are sorted into intra-country mispricing quintiles and grouped globally or by geography, country, or economic classification. The most under-priced stocks (Q5) have higher returns than the most overpriced stocks (Q1). The mispricing signal is negatively correlated with market capitalization, book/market, beta, accruals and prior returns. |
Bagella et al. (2005)Bagella, M., Becchetti, L., & Adriani, F. (2005). Observed and “fundamental” price earnings ratios: A comparative analysis of high-tech stock evaluation in the US and in Europe. Journal of International Money and Finance, 24(4), 549-581. http://dx.doi.org/10.1016/j.jimonfin.2005.03.004. http://dx.doi.org/10.1016/j.jimonfin.200...
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Fundamental analysis |
Stock price |
DCF models and E/P |
U.S. & Europe |
The analysis of the determinants of E/P dispersion for a sample of U.S. high-tech firms shows that fundamental E/P, as estimated by a traditional DCF model, has an almost one-to-one effect on the observed E/P when the model is calibrated by the observed historical risk premium. Fundamental E/P also has superior explanatory power with respect to simpler measures of expected earnings growth. The strong significance of the DCF variable shows that the evaluation of fundamentals is crucial for determining observed values. |
Dorantes Dosamantes (2013)Dorantes Dosamantes, C. A. (2013). The relevance of using accounting fundamentals in the Mexican stock market. Journal of Economics, Finance and Administrative Science, 18, 2-10. http://dx.doi.org/10.1016/S2077-1886(13)70024-6. http://dx.doi.org/10.1016/S2077-1886(13)...
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Valuation theory, fundamental analysis, and market under-reaction of high BM ratio firms |
Future returns, earnings response coefficient, and future earnings growth |
Accounting fundamentals, BM ratio, size |
Mexico |
Evidence of the value relevance of accounting fundamental signals. The proposed F- and L-scores provide additional explanatory power for future returns beyond traditional factors such as book-to-market ratios and size factors. |
Drake et al. (2011)Drake, M., Rees, L., & Swanson, E. (2011). Should investors follow the prophets or the bears? Evidence on the use of public information by analysts and short sellers. The Accounting Review, 86(1), 101-130. http://dx.doi.org/10.2308/accr.00000006. http://dx.doi.org/10.2308/accr.00000006...
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Analysts tend to recommend stocks with high growth, high accruals and low BM ratios, despite their negative associations with future returns |
Stock returns |
11 independent variables from accounting fundamentals |
U.S. |
Short interest is significantly associated with the expected direction for all 11 variables examined. Abnormal returns from a zero-investment strategy shorts firms with highly favourable analyst recommendations but high interest and buys firms with highly unfavourable analyst recommendations but low interest. |
Holloway et al. (2013)Holloway, P., Rochman, R., & Laes, M. (2013). Factors influencing Brazilian value investing portfolios. Journal of Economics, Finance and Administrative Science, 18, 18-22. http://dx.doi.org/10.1016/S2077-1886(13)70026-X. http://dx.doi.org/10.1016/S2077-1886(13)...
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Valuation theory and fundamental analysis |
Future returns |
Accounting fundamentals and size |
Brazil |
For a security to be part of a value investing portfolio, managers should account for the standard deviation of earnings per share, ROA, gross margin, company size (total assets) and liquidity (presence in the Bovespa index). |
Karathanassis and Philippas (1988)Karathanassis, G., & Philippas, N. (1988). Estimation of bank stock price parameters and the variance components model. Applied Economics, 20(4), 497-507. http://dx.doi.org/10.1080/00036848800000060. http://dx.doi.org/10.1080/00036848800000...
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Valuation theory and fundamental analysis |
Share prices |
Accounting fundamentals |
Greece (banks) |
Dividends, retained earnings and size have significant positive influences on share prices. |
Lev and Thiagarajan (1993)Lev, B., & Thiagarajan, S. (1993). Fundamental information analysis. Journal of Accounting Research, 31(2), 190-215. http://dx.doi.org/10.2307/2491270. http://dx.doi.org/10.2307/2491270...
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Valuation theory and fundamental analysis |
Earnings response coefficient and future earnings growth |
12 accounting signals, earnings per share |
U.S. |
On average, the 12 fundamental signals add about 70% to the explanatory power of earnings with respect to excess returns. |
Lev et al. (2010)Lev, B., Li, S., & Sougiannis, T. (2010). The usefulness of accounting estimates for predicting cash flows and earnings. Review of Accounting Studies, 15(4), 779-807. http://dx.doi.org/10.1007/s11142-009-9107-6. http://dx.doi.org/10.1007/s11142-009-910...
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Valuation theory |
Future cash flows and future earnings |
Accounting fundamentals |
U.S. |
Accounting estimates beyond those in working capital items (excluding inventory) do not improve the prediction of cash flows. Estimates improve the prediction of the next year's earnings, but not of subsequent years' earnings. |
Midani (1991)Midani, A. (1991). Determinants of Kuwaiti stock prices: An empirical investigation of industrial services, and food company shares. Journal of Administrative Sciences and Economics, 98, 1-11.
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Fundamental analysis |
Share prices |
Accounting fundamentals |
Kuwait (industrial services & food) |
In a sample of 19 Kuwaiti companies, EPS is a determinant of share prices. |
Navas and Bentes (2023)Navas, R. D., & Bentes, S. R. (2023). Value investing: A new SCORE model. Revista Brasileira de Gestão de Negócios, 25(2), 166-185. http://dx.doi.org/10.7819/rbgn.v25i2.4224. http://dx.doi.org/10.7819/rbgn.v25i2.422...
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Fundamental analysis |
One-year and two-year buy-and-hold adjusted returns |
SCORE and nine fundamental signals |
European markets |
High BM companies earn positive market-adjusted returns in the one-year and two-year periods following portfolio construction. The SCORE model outperforms the individual fundamental signals in terms of return and risk-adjusted return. The SCORE model also has a positive and significant correlation with future returns. |
Nisa (2011)Nisa, M. (2011). The determinants of stock prices in Pakistan. Asian Economic and Financial Review, 1(4), 276-291.
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Valuation theory and fundamental analysis |
Share prices |
Share prices and economic data |
Pakistan |
The previous year's EPS and company size are important factors for determining stock prices in Pakistan. Macroeconomic indicators such as real GDP growth, interest rate and financial development have significant impacts. |
Pätäri et al. (2022)Pätäri, E., Leivo, T., & Ahmed, S. (2022). Can the FSCORE add value to anomaly based portfolios? A reality check in the German stock market. Financial Markets and Portfolio Management, 36(3), 321-367. http://dx.doi.org/10.1007/s11408-021-00400-9. http://dx.doi.org/10.1007/s11408-021-004...
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Accrual anomaly |
Portfolio returns |
Accruals (ACCR) and F-score (FSCORE) |
Germany |
The low-ACCR portfolio generates the highest net return among 39 comparable portfolios, especially when re-formed every three years. The performance of the low-ACCR portfolio is enhanced by removing microcap firms from the investable universe. The stand-alone FSCORE portfolio has the highest Sharpe ratio and information ratio among the 39 portfolios. |
Piotroski (2000)Piotroski, J. (2000). Value investing: The use of historical financial statement information to separate winners from losers. Journal of Accounting Research, 38(3), 1-41. http://dx.doi.org/10.2307/2672906. http://dx.doi.org/10.2307/2672906...
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Valuation theory |
Future returns |
Accounting fundamentals: BM ratio, size, accruals |
U.S. |
Mean returns earned by a high BM investor can be increased by at least 7.5% annually by selecting financially strong, high BM firms. |
Richardson et al. (2010)Richardson, S., Tuna, I., & Wysocki, P. (2010). Accounting anomalies and fundamental analysis: A review of recent research advances. Journal of Accounting and Economics, 50(2-3), 410-454. http://dx.doi.org/10.1016/j.jacceco.2010.09.008. http://dx.doi.org/10.1016/j.jacceco.2010...
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Literature review of accounting anomalies and fundamental analysis |
Future earnings and future stock returns |
Accounting information |
Mainly U.S. |
The accounting anomaly and FA literature demonstrates the usefulness of accounting information in forecasting future earnings and stock returns. Anomalous return patterns tend to be concentrated in a subset of small, less liquid firms with high risk. |
Shen and Lin (2010)Shen, C.-H., & Lin, K.-L. (2010). The impact of corporate governance on the relationship between fundamental information analysis and stock returns. Emerging Markets Finance & Trade, 46(5), 90-105. http://dx.doi.org/10.2753/REE1540-496X460506. http://dx.doi.org/10.2753/REE1540-496X46...
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Valuation theory and fundamental analysis |
Stock returns |
Accounting fundamentals: EPS and a vector of corporate governance variables |
Taiwan |
Corporate governance variables affect the relationship between fundamental signals and stock returns. An endogenous switching model combines the response equation and governance index equation. |
Tikkanen and Äijö (2018)Tikkanen, J., & Äijö, J. (2018). Does the F-score improve the performance of different value investment strategies in Europe? Journal of Asset Management, 19(7), 495-506. http://dx.doi.org/10.1057/s41260-018-0098-3. http://dx.doi.org/10.1057/s41260-018-009...
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Valuation theory |
Future returns |
Accounting fundamentals: BM ratio, size, accruals |
Europe |
Replicates Piotroski's (2000)Piotroski, J. (2000). Value investing: The use of historical financial statement information to separate winners from losers. Journal of Accounting Research, 38(3), 1-41. http://dx.doi.org/10.2307/2672906. http://dx.doi.org/10.2307/2672906...
F-Score in European companies. |
Tsoukalas and Sil (1999)Tsoukalas, D., & Sil, S. (1999). The determinants of stock prices: Evidence from the United Kingdom stock market. Management Research News, 22(5), 1-14. http://dx.doi.org/10.1108/01409179910781652. http://dx.doi.org/10.1108/01409179910781...
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Dividends |
Future returns |
Dividend ratios |
United Kingdom |
The dividend/price ratio predicts real stock returns for the U.K. stock market, and there is a strong relationship between stock returns and dividend yields. |
Walkshäusl (2020Walkshäusl, C. (2020). Piotroski’s FSCORE: International evidence. Journal of Asset Management, 21(2), 106-118. http://dx.doi.org/10.1057/s41260-020-00157-2. http://dx.doi.org/10.1057/s41260-020-001...
, 2019Walkshäusl, C. (2019). The fundamentals of momentum investing: European evidence on understanding momentum through fundamentals. Accounting and Finance, 59(S1), 831-857. http://dx.doi.org/10.1111/acfi.12462. http://dx.doi.org/10.1111/acfi.12462...
, 2015Walkshäusl, C. (2015). Equity financing activities and European value-growth returns. Journal of Banking & Finance, 57, 27-40. http://dx.doi.org/10.1016/j.jbankfin.2015.04.008. http://dx.doi.org/10.1016/j.jbankfin.201...
) |
Valuation theory |
Future returns, earnings response coefficient and future earnings growth |
Accounting. fundamentals: BM ratio, size, accruals |
Europe |
As in the U.S., European value-growth returns depend on the valuation signals contained in the firm's equity financing activities. The high returns of value firms are due to value buyers; the low returns of growth firms are due to growth issuers. |