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

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  • Ng, Chi Cheong Allen
  • Shen, Jianfu

Abstract

This paper explores whether a simple fundamental analysis strategy, FSCORE by Piotroski (2000), can discriminate between firms with strong financial strength and those with weak financial strength over the period of 2000 to 2015 in seven Pacific-Basin markets: Hong Kong, Australia, Singapore, South Korea, Malaysia, Thailand and Indonesia. Similar to Piotroski and So (2012), FSCORE can screen winners from losers in all book-to-market portfolios in most of the markets; the returns of portfolios with high FSCORE are significantly more than the returns of portfolios in the same category with low FSCORE. The portfolios that long value stocks (high book-to-market) with high FSCORE yield significantly positive risk-adjusted return. We find that FSCORE can also be applied to size portfolios. The portfolios of small cap stocks with high FSCORE give monthly risk-adjusted returns of 2.5289%, 3.3552%, 1.1081%, 1.0744%, 0.5762%, 0.9263%, and 1.7802% in Hong Kong, Australia, Singapore, South Korea, Malaysia, Thailand and Indonesia. The predictive ability of FSCORE in screening winners from losers is stronger in small cap stocks than value stocks.

Suggested Citation

  • Ng, Chi Cheong Allen & Shen, Jianfu, 2016. "Screen winners from losers using simple fundamental analysis in the Pacific-Basin stock markets," Pacific-Basin Finance Journal, Elsevier, vol. 39(C), pages 159-177.
    • Handle: RePEc:eee:pacfin:v:39:y:2016:i:c:p:159-177
    DOI: 10.1016/j.pacfin.2016.06.003
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    Cited by:

    1. Irfan Safdar & Michael Neel & Babatunde Odusami, 2022. "Accounting information and left-tail risk," Review of Quantitative Finance and Accounting, Springer, vol. 58(4), pages 1709-1740, May.
    2. Memis, Halil I. & Wessels, Ulrich, 2024. "Dissecting value-growth strategies conditioned on expectation errors," The Quarterly Review of Economics and Finance, Elsevier, vol. 93(C), pages 155-163.
    3. Christian Walkshäusl, 2020. "Piotroski’s FSCORE: international evidence," Journal of Asset Management, Palgrave Macmillan, vol. 21(2), pages 106-118, March.
    4. Jiang, Fuwei & Jin, Fujing & Tang, Guohao, 2020. "Dissecting the effectiveness of firm financial strength in predicting Chinese stock market," Finance Research Letters, Elsevier, vol. 32(C).
    5. Chi Cheong Allen Ng & Jianfu Shen, 2020. "Quality investing in Asian stock markets," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(3), pages 3033-3064, September.

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    More about this item

    Keywords

    FSCORE; Book-to-market; Size; Risk-adjusted return; Portfolio; Cross-section of stock returns;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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