Piotroski's F-Score in the Chinese Stock Market

Abstract

This study examines the applicability and effectiveness of Piotroski's F-score in the Chinese stock market. We investigate whether a long-short hedged portfolio formed using the F-score can earn significant excess returns unexplained by common asset pricing models. Our findings reveal that portfolios based on the F-score demonstrate significant excess returns, with the High-Low portfolio achieving a monthly average excess return of 0.57% under equal weighting and 0.50% under value weighting. Additionally, the integration of the F-score with other fundamental and behavioral finance metrics, like the book-to-market ratio and short-term reversal, further enhances investment performance. The expectation error and FAR (Fundamental-Anchored Reversal) portfolios significantly outperform those based solely on the F-score, indicating the synergy between different information dimensions. These results underscore the importance of fundamental information in the cross-section of expected returns and highlight the potential for combining it with other factors to develop robust investment strategies in the Chinese market. The robustness of our findings is confirmed through various robustness checks.

Keywords: fundamental analysis, quantamental, behavioral finance

JEL Classification: G12, G41