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Discussion of “Separating Winners from Losers among Low Book-to-Market Stocks using Financial Statement Analysis”

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  • Joseph D. Piotroski

    (University of Chicago)

Abstract

The conference paper by Mohanram (2005) provides evidence on the success of contextual financial statement analysis in the low book-to-market (i.e., glamour) stock setting. The economic benefits of the strategy are concentrated in the identification of glamour firms that will ultimately underperform the market. In contrast to traditional accounting-based anomalies, Mohanram’s growth-based trading strategy is stronger among large, heavily followed firms, suggesting that the mechanism behind the mispricing of glamour firms is different than the traditional information environment and dissemination arguments found in other settings. Despite the robustness of the reported results, the strategy faces implementation constraints due to (1) the relative costs associated with gathering industry-adjusted data and (2) the frictions and costs associated with capitalizing on expected price declines over a long horizon. Finally, the relative benefits of contextual analysis need to be assessed against the predictive benefits accruing to traditional financial statement analysis-based investment techniques.

Suggested Citation

  • Joseph D. Piotroski, 2005. "Discussion of “Separating Winners from Losers among Low Book-to-Market Stocks using Financial Statement Analysis”," Review of Accounting Studies, Springer, vol. 10(2), pages 171-184, September.
    • Handle: RePEc:spr:reaccs:v:10:y:2005:i:2:d:10.1007_s11142-005-1527-3
    DOI: 10.1007/s11142-005-1527-3
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    References listed on IDEAS

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    1. Owen A. Lamont & Richard H. Thaler, 2003. "Can the Market Add and Subtract? Mispricing in Tech Stock Carve-outs," Journal of Political Economy, University of Chicago Press, vol. 111(2), pages 227-268, April.
    2. La Porta, Rafael, et al, 1997. "Good News for Value Stocks: Further Evidence on Market Efficiency," Journal of Finance, American Finance Association, vol. 52(2), pages 859-874, June.
    3. Partha S. Mohanram, 2005. "Separating Winners from Losers among LowBook-to-Market Stocks using Financial Statement Analysis," Review of Accounting Studies, Springer, vol. 10(2), pages 133-170, September.
    4. Bernard, Vl & Thomas, Jk, 1989. "Post-Earnings-Announcement Drift - Delayed Price Response Or Risk Premium," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 27, pages 1-36.
    5. Ohlson, Ja, 1980. "Financial Ratios And The Probabilistic Prediction Of Bankruptcy," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 18(1), pages 109-131.
    6. Piotroski, JD, 2000. "Value investing: The use of historical financial statement information to separate winners from losers," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 38, pages 1-41.
    7. Trueman, B & Wong, MHF & Zhang, XJ, 2000. "The eyeballs have it: Searching for the value in internet stocks," Journal of Accounting Research, John Wiley & Sons, Ltd., vol. 38, pages 137-162.
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    Keywords

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    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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