A1 Journal article (refereed), original research

Can the FSCORE add value to anomaly-based portfolios? A reality check in the German stock market


Open Access hybrid publication


Publication Details

Authors: Pätäri Eero, Leivo Timo, Ahmed Sheraz

Publication year: 2021

Language: English

Related journal or series: Financial Markets and Portfolio Management

ISSN: 1934-4554

JUFO level of this publication: 1

Digital Object Identifier (DOI): http://dx.doi.org/10.1007/s11408-021-00400-9

Permanent website address: https://rdcu.be/cvaDe

Open Access: Open Access hybrid publication


Abstract

This paper examines the added value of using financial statement information, particularly that of Piotroski’s (J Account Res 38:1, 2000. https://doi.org/10.2307/2672906) FSCORE, for equity portfolio selection in the German stock market in a realistic research setting in which the critique against the implementability of FSCORE-based trading strategies is taken into account. We show that the performance of annually rebalanced long-only portfolios formed on any of the examined 12 accounting-based primary criteria improves by including the FSCORE as a supplementary criterion. Our study is the first to show that although the FSCORE boost is strongest for the 1-year holding period length, it also holds, on average, for the 3-year holding period. The use of a 3-year updating frequency is particularly beneficial for the low-accrual portfolio that—when supplemented with the high-FSCORE threshold—generates the best overall performance among all 75 portfolios examined. Moreover, we show that a high FSCORE is also an efficient stand-alone criterion for long-only portfolio formation.


Research Areas

Last updated on 2021-20-08 at 12:41