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Investment Based On Size, Value, Momentum And Income Measures: A Study In The Taiwan Stock Market

Author

Listed:
  • RICHARD LU

    (Department of Risk Management and Insurance, Feng Chia University, Taiwan)

  • JAI-JEN WANG

    (Department of Finance, Feng Chia University, Taiwan)

  • WING-KEUNG WONG

    (Department of Finance, Fintech & Blockchain Research Center and Big Data Research Center, Asia University, Taiwan4Department of Medical Research, China Medical University, Taiwan5Department of Economics and Finance, The Hang Seng University of Hong Kong, Hong Kong)

Abstract

Cross-sectional characteristics of stocks such as market value, market-to-book ratio and accumulated past return can be applied to formulate equity portfolios in the stock-picking process to generate good profits in some markets, which relate to the well-known size, value and momentum or contrarian strategies in the literature. Alternatively, income measures in financial statements drive investors in stock markets to buy or sell in an intuitive way that can be also used in the stock-picking process to generate good profits in some markets. This study applies these types of information in the formation period to formulate long-short strategies and investigates both the returns and risk profiles in the holding period afterward and checks whether the measures can be used to generate good profits in the Taiwan markets for the period from January 1980 to June 2020. Given different lengths of the holding period and different equity segments, our empirical analysis shows that strategies filtered by the income measure of gross profitability outperform the counterparts filtered by the operating profitability. Moreover, while the momentum or contrarian effect is not, the size and value effects are helpful to improve the performance of long-short strategies filtered by gross profitability.

Suggested Citation

  • Richard Lu & Jai-Jen Wang & Wing-Keung Wong, 2022. "Investment Based On Size, Value, Momentum And Income Measures: A Study In The Taiwan Stock Market," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 17(04), pages 1-33, December.
    • Handle: RePEc:wsi:afexxx:v:17:y:2022:i:04:n:s2010495222500270
    DOI: 10.1142/S2010495222500270
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    Cited by:

    1. Mosab I. Tabash & Musla Valappil & Uzma Iqbal & Umar Farooq & Kai-Yin Woo, 2023. "Stock market Reaction to General Election in Pakistan: An Event Study Methodology," Advances in Decision Sciences, Asia University, Taiwan, vol. 27(4), pages 90-113, December.

    More about this item

    Keywords

    Operating profitability; gross profitability; size; value; momentum; contrarian; long-short strategy;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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