Swing Trading Signals


Since 2013

  • 100% Quantified, data-driven and Backtested
  • We always show our results!
  • Signals every day via our site or email
  • Cancel at any time!

Technical, Fundamental, and Combined Information for Distinguishing Winners from Losers: A Comprehensive Analysis

Last Updated on 10 February, 2024 by Rejaul Karim

The research paper “Technical, Fundamental, and Combined Information for Separating Winners from Losers” by Hong-Yi Chen, Cheng-Few Lee, and Wei-Kang Shih explores the potential of merging fundamental accounting information with technical analysis to distinguish momentum winners from losers.

The study introduces the ratio of liquidity buy volume to liquidity sell volume (BOS ratio) as a proxy for information asymmetry among stocks and demonstrates that incorporating the BOS momentum strategy can enhance profits. Furthermore, the researchers propose a unified framework that integrates two fundamental indicators—the FSCORE (Piotroski, 2000) and the GSCORE (Mohanram, 2005)—into momentum strategy.

Empirical findings reveal that the combined investment strategy captures stocks with larger information content that the market cannot promptly reflect, leading to significantly higher returns compared to the momentum strategy alone, thus offering valuable insights into the effectiveness of this novel approach.

Abstract Of Paper

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. Empirical results show that the combined investment strategy includes stocks with larger information content that the market cannot reflect in time, and therefore, the combined investment strategy outperforms momentum strategy by generating significantly higher returns.

Original paper – Download PDF

Here you can download the PDF and original paper of Technical, Fundamental, and Combined Information for Separating Winners from Losers.

(An option to download will come shortly)

Author

Hong-Yi Chen
National Chengchi University – Department of Finance

Cheng-Few Lee
Rutgers University, Newark, School of Business-Newark, Department of Finance & Economics

Wei-Kang Shih
Rutgers, The State University of New Jersey – Rutgers Business School at Newark & New Brunswick

Conclusion

In conclusion, the research paper “Technical, Fundamental, and Combined Information for Separating Winners from Losers” by Hong-Yi Chen, Cheng-Few Lee, and Wei-Kang Shih highlights the promise of a combined investment approach, incorporating both technical and fundamental accounting information, to optimize the separation of momentum winners from losers.

The study introduces the BOS ratio as an innovative measure of information asymmetry in stocks and demonstrates the value-added benefits of incorporating the BOS momentum strategy. Furthermore, the empirical results showcase the effectiveness of a unified framework that merges two fundamental indicators—FSCORE and GSCORE—with momentum strategies, thereby capturing stocks with larger information content overlooked by the market.

The findings ultimately suggest that the proposed combined investment strategy outshines a conventional momentum-centric approach, generating significantly higher returns and offering a novel perspective for investors seeking to enhance portfolio performance.

Related Reading:

Cross-Sectional and Time-Series Momentum Returns and Market States

Absolute Strength: Exploring Momentum in Stock Returns

FAQ

Q1: What is the main focus of the research paper by Hong-Yi Chen, Cheng-Few Lee, and Wei-Kang Shih?

The research paper explores the integration of fundamental accounting information with technical analysis to effectively distinguish momentum winners from losers in the stock market. It introduces the BOS ratio as a measure of information asymmetry and proposes a unified framework that combines two fundamental indicators—FSCORE and GSCORE—with momentum strategies.

Q2: What is the BOS ratio, and how does it contribute to the momentum strategy?

The BOS ratio represents the ratio of liquidity buy volume to liquidity sell volume and serves as a proxy for the level of information asymmetry among stocks. The study demonstrates that incorporating the BOS momentum strategy enhances the profits of the overall momentum strategy, showcasing its value in optimizing stock selection.

Q3: How does the combined investment strategy, merging technical and fundamental indicators, perform compared to traditional momentum strategies?

Empirical findings reveal that the combined investment strategy, which integrates FSCORE and GSCORE with momentum strategies, outperforms traditional momentum strategies. This approach captures stocks with larger information content that the market cannot promptly reflect, leading to significantly higher returns. The research suggests the effectiveness of this novel combined approach for investors seeking to enhance portfolio performance.

Get All Stocks And Equities Research Papers Strategies here

Leave a Reply

{"email":"Email address invalid","url":"Website address invalid","required":"Required field missing"}

Monthly Trading Strategy Club

$42 Per Strategy

>

Login to Your Account



Signup Here
Lost Password