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Does Financial Statement Analysis Generate Abnormal Returns Under Extremely Adverse Conditions?
Alexsandro Broedel Lopes,
Universidade De São Paulo and Manchester Business School
Fernando Caio Galdi, Fucape Business School and Universidade De São Paulo
ABSTRACT. This paper investigates if an accounting-based fundamental analysis strategy can help investors earn excess returns on a portfolio of high book-to-market (HBM) firms in Brazil. The strategy we adopt is based on Piotroski (2000) who identified 9 fundamental signals to form a composite score (F_SCORE) capable to separate out ex-post winners from losers among HBM firms in the US stock market. We find evidences that a financial statement analysis strategy based on HBM Brazilian firms can separate winners from losers, particularly for two-years (raw and adjusted) returns after the portfolio formation. One could have changed his/her HBM portfolio one-year (two-years) market-adjusted returns from 8.3% (11.5%) to 34.5% (98.2%) selecting financially strong HBM firms between 1994-2004. One interesting issue arising from the evidence we find is that prices seems to incorporate slowly the information contained in financial statements in Brazil.
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