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The Piotroski F Score in the Australian Market: Performance & Fundamental Drivers

Last Updated on 10 February, 2024 by Rejaul Karim

In the vast landscape of the Australian market, Charles Hyde delves into the intricacies of the Piotroski F Score in his study, “The Piotroski F Score in the Australian Market: Performance & Fundamental Drivers.” Applied to the top 200 stocks, the Piotroski signal yields a monthly long/short portfolio return of 1.0%, with a noteworthy emphasis on the short side.

Remarkably, this return amplifies significantly when directed towards smaller-cap stocks, achieving a harmonious balance between long and short positions. Astonishingly, positive returns manifest in 74% of the observed months. Hyde meticulously demonstrates the robustness of the premium associated with high F score stocks, even when adjusting for size, value, and momentum risk premia.

Through rigorous testing, he challenges the conventional wisdom surrounding the F score’s potency, suggesting that underlying forces beyond analyst neglect may be steering its influence in the Australian market.

Abstract Of Paper

We show that when applied to the 200 largest stocks in the Australian market, the Piotroski signal generates long/short portfolio returns of 1.0% per month. However, much of this return is on the short side. The long/short return is much higher against smaller cap stocks and is evenly balanced between the long and short sides. Positive returns are generated in 74% of months. The premium to high F score stocks is robust to controls for the size, value and momentum risk premia. We use three separate tests to show that the standard explanation for the power of the F score signal – analyst neglect of the news contained in small stocks – isn’t supported by the data. Other underlying forces must be at work.

Original paper – Download PDF

Here you can download the PDF and original paper of The Piotroski F Score in the Australian Market: Performance & Fundamental Drivers.

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Author

Charles Hyde
Macquarie Applied Finance Centre and New Zealand Superannuation Fund

Conclusion

In summary, the application of the Piotroski F Score to the Australian market reveals a compelling narrative. Across the 200 largest stocks, the signal yields a noteworthy monthly long/short portfolio return of 1.0%, albeit with a notable tilt towards the short side. Interestingly, this return amplifies significantly with smaller cap stocks, achieving a balanced impact on both the long and short positions.

With positive returns emerging in 74% of the months, the F Score’s prowess remains evident, even after accounting for size, value, and momentum risk factors. However, our analysis challenges the conventional wisdom attributing the F Score’s efficacy solely to analyst neglect of small stock news.

The intricacies underlying this phenomenon warrant further exploration, pointing to nuanced drivers of the F Score’s performance in the Australian market.

Related Reading:

Implementability of Trading Strategies Based on Accounting Information: Piotroski (2000) Revisited

An Emerging Markets Analysis of the Piotroski F Score

FAQ

Q1: What is the key finding regarding the application of the Piotroski F Score in the Australian market, and how does the monthly long/short portfolio return vary across different stock categories?
A1: The key finding is that when applied to the 200 largest stocks in the Australian market, the Piotroski F Score generates a significant monthly long/short portfolio return of 1.0%. However, this return is notably weighted towards the short side. Interestingly, the return is even higher when directed towards smaller-cap stocks, achieving a balanced impact on both long and short positions.

Q2: What sets the Australian market study apart from conventional wisdom regarding the Piotroski F Score, and how does it challenge prevailing explanations for the signal’s effectiveness?
A2: The study challenges conventional wisdom by suggesting that the standard explanation for the power of the F Score signal—analyst neglect of news in small stocks—doesn’t align with the data. The analysis explores other underlying forces that may be at work in driving the F Score’s performance in the Australian market.

Q3: How robust is the premium associated with high F score stocks, and what risk factors does the study consider when evaluating the F Score’s performance in the Australian market?
A3: The premium associated with high F score stocks is shown to be robust, even when controlling for size, value, and momentum risk premia. The study considers three separate tests to assess the F Score’s performance, indicating that its efficacy extends beyond the influence of traditional risk factors in the Australian market.

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