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Technical, fundamental, and combined information for separating winners from losers

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  • Chen, Hong-Yi
  • Lee, Cheng-Few
  • Shih, Wei K.

Abstract

This study examines how fundamental accounting information can be used to supplement technical information to separate momentum winners from losers. We first introduce a ratio of liquidity buy volume to liquidity sell volume (BOS ratio) to proxy the level of information asymmetry for stocks and show that the BOS momentum strategy can enhance the profits of momentum strategy. We further propose a unified framework, produced by incorporating two fundamental indicators—the FSCORE (Piotroski, 2000) and the GSCORE (Mohanram, 2005)—into momentum strategy. The empirical results show that the combined investment strategy includes stocks with a larger information content that the market cannot reflect in time, and therefore, the combined investment strategy outperforms momentum strategy by generating significantly higher returns.

Suggested Citation

  • Chen, Hong-Yi & Lee, Cheng-Few & Shih, Wei K., 2016. "Technical, fundamental, and combined information for separating winners from losers," Pacific-Basin Finance Journal, Elsevier, vol. 39(C), pages 224-242.
    • Handle: RePEc:eee:pacfin:v:39:y:2016:i:c:p:224-242
    DOI: 10.1016/j.pacfin.2016.06.008
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    2. Irfan Safdar & Michael Neel & Babatunde Odusami, 2022. "Accounting information and left-tail risk," Review of Quantitative Finance and Accounting, Springer, vol. 58(4), pages 1709-1740, May.
    3. Ali Fayyaz Munir & Shahrin Saaid Shaharuddin & Mohd Edil Abd. Sukor, 2020. "Long-Term, Short-Term and Time-Varying Profitability of Reversals: The Role of Market State and Volatility," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(2), pages 501-520.
    4. Ardalankia, Jamshid & Osoolian, Mohammad & Haven, Emmanuel & Jafari, G. Reza, 2020. "Scaling features of price–volume cross correlation," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 549(C).
    5. Ali Fayyaz Munir & Shahrin Saaid Shaharuddin & Mohd Edil Abd Sukor & Mohamed Albaity & Izlin Ismail, 2021. "Financial liberalization and the behavior of reversals in emerging market economies," International Journal of Emerging Markets, Emerald Group Publishing Limited, vol. 17(6), pages 1565-1582, January.
    6. Hong‐Yi Chen & Pin‐Huang Chou & Chia‐Hsun Hsieh, 2018. "Persistency of the momentum effect," European Financial Management, European Financial Management Association, vol. 24(5), pages 856-892, November.
    7. B. Senthil Arasu & Desti Kannaiah & Nancy Christina J. & Malik Shahzad Shabbir, 2021. "Selection of Variables in Data Envelopment Analysis for Evaluation of Stock Performance," Management and Labour Studies, XLRI Jamshedpur, School of Business Management & Human Resources, vol. 46(3), pages 337-353, August.
    8. Ali Fayyaz Munir & Mohd Edil Abd. Sukor & Shahrin Saaid Shaharuddin, 2022. "Adaptive Market Hypothesis and Time-varying Contrarian Effect: Evidence From Emerging Stock Markets of South Asia," SAGE Open, , vol. 12(1), pages 21582440211, January.
    9. Jamshid Ardalankia & Mohammad Osoolian & Emmanuel Haven & G. Reza Jafari, 2019. "Scaling Features of Price-Volume Cross-Correlation," Papers 1903.01744, arXiv.org, revised Aug 2020.

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    More about this item

    Keywords

    BOS ratio; Combined investment strategy; Financial statement analysis; Fundamental analysis; Momentum strategies; Technical analysis; Trading volume;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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