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Predicting Stock Returns Using Financial Statement Information

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  • Bambang Setiono

    (University of Tritaski, Indonesia,)

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    Abstract

    We examine the profitability of the Ou and Penman (1989a) "Pr" trading strategy and the Holthausen and Larcker (1992) "Prob" trading strategy over the period 1980-1992 in the UK. This is a test of whether an investor can earn abnormal returns by exploiting fundamental accounting data. We employ alternative abnormal return metrics and research designs to control for risk. Using a UK dataset offers an independent test because the UK differs from the US in its formal and informal financial reporting environment, its structure of share ownership, and the behaviour of its economy over the study period. We find consistent evidence that an investor could have used a summary measure of financial statement information to predict future abnormal returns by indirectly predicting one-year-ahead earnings changes, but only weak and inconsistent evidence that an investor could have used a summary measure of financial statement information to predict one-year-ahead stock returns directly. We offer some thoughts on the reasons for these different results. Copyright Blackwell Publishers Ltd 1998.

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    Bibliographic Info

    Article provided by Wiley Blackwell in its journal Journal of Business Finance & Accounting.

    Volume (Year): 25 (1998-06)
    Issue (Month): 5&6 ()
    Pages: 631-657

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    Handle: RePEc:bla:jbfnac:v:25:y:1998-06:i:5&6:p:631-657

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    Web page: http://www.blackwellpublishing.com/journal.asp?ref=0306-686X

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    Cited by:
    1. Benito Arruñada & Luis Vázquez & Giorgio Zanarone, 2009. "Institutional constraints on organizations: the case of Spanish car dealerships," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 30(1), pages 15-26.
    2. Avkiran, Necmi K. & Morita, Hiroshi, 2010. "Predicting Japanese bank stock performance with a composite relative efficiency metric: A new investment tool," Pacific-Basin Finance Journal, Elsevier, vol. 18(3), pages 254-271, June.

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