Building of F-Score-Like Models on the Example of the Polish Stock Market

• Authors: Bartłomiej Pilch

Abstracts

EN

Theoretical background: Value investing is one of the most popular investing approaches. In their frame, there could be a high B/M investing strategy identified. F-Score, developed by Piotroski, is a scoring model applied to the sample of high B/M entities. Its purpose is to select companies with strong financial foundations and buy their shares for the investment portfolio to generate positive market-adjusted returns in the following periods. The effectiveness of this model was mostly empirically confirmed, especially regarding developed markets. Purpose of the article: The main aim of the paper was to build F-Score-like models based on the data from the Polish stock market. The main hypothesis concerned the higher effectiveness of such models than F-Score, as the specificity of a given market should result in a better fit to the data. Research methods: Building of the models based on the discriminant analysis and formation of the investment portfolios based on the indications of these models as well as F-Score. Finally, backtesting of the portfolios built to assess their effectiveness. The sample covered most of the Polish-listed companies. The period taken into account was 2012–2022. Main findings: Models built (X-Score and Y-Score) were less efficient than F-Score. Moreover, they led to generating negative rates of return (both raw and market-adjusted). On the other hand, using of F-Score for the analyzed period seems to be purposeful due to the 1.35% mean annual market-adjusted return generated. Apart from the scoring models analyzed, the research partially confirmed the advisability of using a high B/M investing strategy. Generally, the results obtained are in line with the findings of most of other authors –regarding the F-Score effectiveness. However, an approach based on Mohanram’s idea – using the differences between absolute values of a given variable and median from the sample – proved to be inadequate in the Polish stock market.

Keywords

EN

F-Score; book-to-market; value investing; investment portfolio; scoring model

• Publisher: Wydawnictwo Uniwersytetu Marii Curie-Skłodowskiej
• Journal: Annales Universitatis Mariae Curie-Skłodowska, sectio H – Oeconomia
• Year: 2023
• Volume: 57
• Issue: 1
• Pages: 155-180

Dates

published

2023

Contributors

author

Bartłomiej Pilch

• Cracow University of Economics

• https://orcid.org/0000000200814050

References

• Agrawal, K. (2015). Default prediction using Piotroski's F-score. Global Business Review, 16(5S), 175S-186S. doi:10.1177/0972150915601261
• Almas, D., & Duque, J. (2008). Value investing: The Book-to-Market effect, accounting information, and stock returns. ADVANCE - Centro de Investigação Avançada em Gestão Working Papers, No. 1/2008.
• Asmadi, D., Izzaty, N., & Erwan, F. (2021). Performance analysis of sharia share companies using the Piotroski F-Score method. Jurnal Ekonomi dan Keuangan Syariah, 5(1), 67-75. doi:10.29313/amwaluna.v5i1.5926
• Auret, C.J., & Sinclaire, R.A. (2006). Book-to-market ratio and returns on the JSE. Investment Analysts Journal, 63, 31-38. doi: 10.1080/10293523.2006.11082476
• Badeskis, Ch., Christopoulos, A., Katsampoxakis, I., & Nastas, V. (2022). The impact of the Ukrainian war on stock and energy markets: A wavelet coherence analysis. Energies, 15, 1-15. doi:10.3390/en15218174
• Barth, M.E., Israeli, D., & Sridharan, S.A. (2022). Equity book-to-market ratios above one and macroeconomic risk. SSRN Electronic Journal. doi:10.2139/ssrn.3306503
• Battisti, E., Miglietta, N., Salvi, A., & Creta, F. (2019). Strategic approaches to value investing: asystematic literature review of international studies. Review of International Business and Strategy, 29(3), 253-266. doi:10.1108/RIBS-01-2019-0011
• Brindelid, L., & Nilsson, T. (2021). Portfolio Performance in Nordic Countries: A Quantitative Comparison Study of Investment Strategies in Denmark, Finland, Norway and Sweden. Postgraduate thesis, Karlstad Business School.
• Chan, L.K.C., Hamao, Y., & Lakonishok, J. (1991). Fundamentals and stock returns in Japan.The Journal of Finance, 46(5), 1739-1764. doi:10.1111/j.1540-6261.1991.tb04642.x
• Chlebisz, A. (2018). Efektywność ETF w porównaniu do aktywnie zarządzanych akcyjnych funduszy inwestycyjnych na podstawie rynku kapitałowego w Polsce. Rynek - Społeczeństwo - Kultura, 1(27), 46-50.
• Comparic. (2017, June 5). Jak z zyskiem przejść krach, czyli strategia F-Score. Retrieved from https://comparic. pl/zyskiem-przejsc-krach-czyli-strategia-f-score/
• Czech, K., Wielechowski, M., Kotyza, P., Benešová, I., & Laputková, A. (2020). Shaking stability: COVID-19 impact on the Visegrad Group countries' nfiancial markets. Sustainability, 12(15), 1-19. doi:10.3390/su12156282
• Da Cunha Araújo, R.C., & Veras Machado, M.A. (2018). Book-to-market ratio, return on equity and Brazilian stock returns. RAUSP Management Journal, 53(3), 324-344. doi:10.1108/RAUSP-04-2018-001
• Daniluk, K. (2019). Protfiability and risk of selected forms of investment on the Polish capital market. Economic and Regional Studies, 14(2), 209-219. doi:10.2478/ers-2021-0014
• Fahreza, M., & Rizkianto, E. (2021). Retained earnings factor analysis on return and excess return: Acomparison study of retained earnings-to-market equity and book-to-market equity from 2008 - 2018.Advances in Economics, Business and Management Research, 177, 225-231. doi:10.2991/aebmr.k.210522.030
• Fama, E., & French, K. (1992). The cross-section of expected returns.The Journal of Finance, 47(2), 427-465. doi:10.1111/j.1540-6261.1992.tb04398.x
• Fisher, F. (1958). Common Stock and Uncommon Protfi. New York: Wiley Investments Classic.
• Forner, C., & Vázquez Veira, P. (2018). Using book-to-market ratio, accounting strength, and momentum to construct a value investing strategy: The case of Spain. Spanish Journal of Finance and Accounting, 48(1), 21-49. doi:10.1080/02102412.2018.1461460
• Gimeno, R., Lobán, L., & Vicente, L. (2019). A neural approach to value investing tool F-Score. Finance Research Letters, 37(C), 1-11. doi:10.1016/j.frl.2019.101367
• Graham, B., & Dodd, D. (1934). Security Analysis. New York: McGraw Hill.
• Gray, W. (2015, May 5). Simple methods to improve the Piotroski F-Score. Retrieved from https://alphaarchitect.com/2015/05/value-investing-research-simple-methods-to-improve-the-piotroski-f-score/
• Hamilton, T. (2013). Super company. Corporate Knights, 11(4), 28-41.
• Hedau, A. (2020). Value investing: Evidence from listed construction and infrastructure sector companies in India. Romanian Economic Business Review, 15(4), 104-114.
• Hyde, C. (2013). An emerging markets analysis of the Piotroski F-Score. SSRN Electronic Journal. doi:10.2139/ssrn.2274516
• Hyde, C. (2016). The Piotroski F-Score: Evidence from Australia. Accounting and Finance, 58(2), 423-444. doi:10.1111/ac.fi12216
• Jaworski, J., & Czerwonka, L. (2017). Determinanty struktury kapitału przedsiębiorstw notowanych na GPW w Warszawie. Sektor usług. Annales Universitatis Mariae Curie-Skłodowska, Sectio H - Oeconomia, 51(4), 133-142. doi:10.17951/h.2017.51.4.133
• Korir, C. (2019). Applicability of Piotroski F-Score model in predicting nfiancial distress of listed companies at the Nairobi Securities Exchange 20 Share Index. Postgraduate thesis, Kabarak University.
• Krauss, C., Krüger, T., & Beerstecher, D. (2015). The Piotroski F-Score: Afundamental value strategy revisited from an investor's perspective. IWQW Discussion Papers No. 13.
• Kusowska, M. (2021). Assessment of efficiency of Piotroski F-Score strategy in the Warsaw Stock Exchange. Przedsiębiorstwo we współczesnej gospodarce - teoria i praktyka. 1(32), 47-59. doi:10.19253/reme.2021.01.004
• Lakonishok, J., Shleifer, A., & Vishny, R.W. (1994). Contrarian investment, extrapolation and risk.The Journal of Finance, 49(5), 1541-1578. doi:10.1111/j.1540-6261.1994.tb04772.x
• Mielus, P. (2022). Reakcja rynku finansowego na wybuch wojny rosyjsko-ukraińskiej w porównaniu do reakcji na wybuch pandemii COVID-19 w Europie. Bezpieczny Bank, 1(86), 80-99. doi:10.26354/bb.5.1.86.2022
• Mohanram, P. (2005). Separating winners from losers among low book-to-market stocks using nfiancial statement analysis. Review of Accounting Studies, 10, 133-170. doi:10.1007/s11142-005-1526-4
• Mohanram, P., Saiy, S., & Vyas, D. (2017). Fundamental analysis of banks: The use of financial statement information to screen winners from losers. Review of Accounting Studies, 23(1), 200-233. doi:10.1007/s11142-017-9430-2
• Mohr, J.-H.M. (2012). Utility of Piotroski F-Score for predicting growth-stock returns. Working Paper, MFIE Capital.
• Nast, T.K. (2017). Transforming Piotroski's (binary) F-score into a real one. Postgraduate thesis, University of Pretoria.
• Noma, M. (2010). Value investing and financial statement analysis. Hitotsubashi Journal of Commerce and Management, 44(1), 29-46. doi:10.15057/18701
• O'Brien, M.A., Brailsford, T., & Gaunt, C. (2010). Interaction of size, book-to-market and momentum effects in Australia. Accounting and Finance, 50(1), 197-219. doi:10.1111/j.1467-629X.2009.00318.x
• Oyebode, A. (2016). Application of the Altman Z-EM-Score and Piotroski F-Score to the Johannesburg Securities Exchange as Short Selling Instrument. Postgraduate thesis, University of Pretoria.
• Pätäri, E.J., Leivo, T.H., Hulkkonen, L., & Honkapuro, J.V.S. (2018). Enhancement of value investing strategies based on nfiancial statement variables: the German evidence. Review of Quantitative Finance and Accounting, 51(3), 813-845. doi:10.1007/s11156-017-0689-y
• Perez, G.A. (2018). Value and size effects in the stock market of the Philippines. International Journal of Financial Research, 9(2), 191-202. doi:10.5430/ijfr.v9n2p191
• Pilch, B. (2021). Analiza wskaźnika F-Score dla spółek giełdowych z branż IT i gier wideo. Annales Universitatis Mariae Curie-Skłodowska. Sectio H - Oeconomia,55(1), 41-50. doi:10.17951/h.2021.55.1.41-50
• Piotroski, J. (2000). Value investing: The use of historical financial statement information to separate winners from losers. Journal of Accounting Research, 38, 1-41. doi:10.2307/2672906
• Pluskota, A., Bolek, M., & Wolski, R. (2020). Liquidity - profitability relationship analysed with the Granger causality test on the example of the Warsaw Stock Exchange. Annales Universitatis Mariae Curie-Skłodowska, Sectio H - Oeconomia, 54(2), 89-101. doi:10.17951/h.2020.54.2.89-101
• Puerto, J., Rodríguez-Madrena, M., & Scozzari, A. (2020). Clustering and portfolio selection problems: A uniefid framework. Computers and Operations Research, 117, 1-11. doi:10.1016/j.cor.2020.104891
• Rahman, M., Li, C., & Masud, M. (2021). Predicting firms' financial distress: An empirical analysis using the F-Score model. Journal of Risk and Financial Management, 14(5), 199-214. doi:10.3390/jrfm14050199
• Rathjens, H., & Schellhove, H. (2011). Simple Financial Analysis and Abnormal Stock Returns - Analysis of Piotroski's Investment Strategy. Master thesis, Stockholm School of Economics.
• Rosenberg, B., Reid, K., & Lanstein, R. (1985). Persuasive evidence of market inefcfiiency. Journal of Portfolio Management, 11(3), 9-16. doi:10.3905/jpm.1985.409007
• Safdar, I. (2016). Industry competition and fundamental analysis. Journal of Accounting Literature, 37(C), 36-54. doi:10.1016/j.acclit.2016.09.001
• Sareewiwatthana, P., & Janin, P. (2017). Tests of quantitative investing strategies of famous investors: Case of Thailand. Investment Management and Financial Innovations, 14(3), 218-226. doi:10.21511/im.fi14(3-1).2017.06
• Sierpińska, M., & Jachna, T. (2007). Ocena przedsiębiorstwa według standardów światowych. Warszawa: Wyd. Naukowe PWN.
• Singh, J., & Kaur, K. (2015). Adding value to value stocks in Indian stock market: An empirical analysis. International Journal of Law and Management, 57(6), 621-636. doi:10.1108/ijlma-09-2014-0055
• Stattman, D. (1980). Book values and stock returns. The Chicago MBA: A Journal of Selected Papers, 4.
• Subramanyam, K.R. (2014). Financial Statement Analysis. New York: McGraw Hill.
• Syzdykov, A. (2021). Evaluation of Size and Book-to-market Factors in Kazakhstan Stock Market using the CAPM Regression. Bachelor thesis, Aalto University School of Business.
• Tikkanen, J., & Äijö, J. (2018). Does the F-score improve the performance of different value investment strategies in Europe? Journal of Asset Management, 19(3), 495-506. doi:10.1057/s41260-018-0098-3
• Tripathy, B., & Pani, B. (2017). Effect of F-Score on stock performance: Evidence from Indian equity market. International Journal of Economics and Finance, 9(2), 89-99. doi:10.5539/ijef.v9n2p89
• Turtle, H.J., & Wang, K. (2017). The value in fundamental accounting information.The Journal of Financial Research, 40(1), 113-140. doi:10.1111/jrfi.12119
• Walkshäusl, C. (2020). Piotroski's F-Score: International evidence. Journal of Asset Management, 21(2), 106-118. doi:10.1057/s41260-020-00157-2
• Wawryszuk-Misztal, A. (2015). Wyniki operacyjne polskich przedsiębiorstw zmieniających rynek notowań akcji. Annales Universitatis Mariae Curie-Skłodowska, Sectio H - Oeconomia, 49(4), 649-658. doi:10.17951/h.2015.49.4.649

Identifiers

DOI

10.17951/h.2023.57.1.155-180

Biblioteka Nauki

16729022