47 Pages Posted: 10 Jan 2017
Date Written: January 8, 2017
We examine the role of fundamental accounting information in shaping portfolio performance. Using a conditional performance approach, we address the concern that the positive relationship between Piotroski’s F Score and ex post returns is due to risk compensation. Our results show that portfolios of firms with strong fundamental underpinnings generate significant positive and time-varying performance. One potential source of these performance gains is an under-reaction to public information (such as momentum and F Score) when information uncertainty (proxied by size, illiquidity, and idiosyncratic volatility) is high. In addition, conditional performance benefits seem prevalent in periods of high investor sentiment.
Keywords: Fundamental Valuation, Conditional Alpha, Portfolio Performance, Information Uncertainty
JEL Classification: G11, G12, G14, M41
Suggested Citation: Suggested Citation
Turtle, Harry J. and Wang, Kainan, The Value in Fundamental Accounting Information (January 8, 2017). Journal of Financial Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2895688