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A comparison of Graham and Piotroski investment models using accounting information and efficacy measurement

Author

Listed:
  • Nusrat Jahan

    (Assistant Professor, Department of Accounting & Information Systems, Faculty of Business Studies, University of Dhaka.)

  • John J. Cheh

    (Professor, George W. Daverio School of Accountancy, College of Business Administration, The University of Akron.)

  • Il-woon Kim

    (Professor, George W. Daverio School of Accountancy, College of Business Administration, The University of Akron. OH 44325.)

Abstract

We examine the investment models of Benjamin Graham and Joseph Piotroski and compare the efficacy of these two models by running backtest, using screening rules and ranking systems built in Portfolio 123. Using different combinations of screening rules and ranking systems, we also examine the performance of Piotroski and Graham investment models. We find that the combination of Piotroski and Graham investment models performs better than S&P 500. We also find that the Piotroski screening with Graham ranking generates the highest average annualized return among different combinations of screening rules and ranking systems analyzed in this paper. Overall, our results show a profound impact of accounting information on investor’s decision making.

Suggested Citation

  • Nusrat Jahan & John J. Cheh & Il-woon Kim, 2016. "A comparison of Graham and Piotroski investment models using accounting information and efficacy measurement," Journal of Economic and Financial Studies (JEFS), LAR Center Press, vol. 4(1), pages 43-54, February.
    • Handle: RePEc:lrc:lareco:v:4:y:2016:i:1:p:43-54
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    References listed on IDEAS

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    1. Leonid Kogan & Dimitris Papanikolaou, 2013. "Firm Characteristics and Stock Returns: The Role of Investment-Specific Shocks," The Review of Financial Studies, Society for Financial Studies, vol. 26(11), pages 2718-2759.
    2. Barro, Robert J, 1990. "The Stock Market and Investment," The Review of Financial Studies, Society for Financial Studies, vol. 3(1), pages 115-131.
    3. Piotroski, JD, 2000. "Value investing: The use of historical financial statement information to separate winners from losers," Journal of Accounting Research, Wiley Blackwell, vol. 38, pages 1-41.
    4. Abel, Andrew B, 1983. "Optimal Investment under Uncertainty," American Economic Review, American Economic Association, vol. 73(1), pages 228-233, March.
    5. Liu, Hong, 2014. "Solvency Constraint, Underdiversification, and Idiosyncratic Risks," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 49(2), pages 409-430, April.
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    Cited by:

    1. Gerardo “Gerry” Alfonso Perez, 2018. "Value Investing and Size Effect in the South Korean Stock Market," IJFS, MDPI, vol. 6(1), pages 1-25, March.

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    More about this item

    Keywords

    Investment models; Ranking; Rebalancing periods; Screening.;
    All these keywords.

    JEL classification:

    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General
    • G1 - Financial Economics - - General Financial Markets
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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