Discussion of “Separating Winners from Losers among Low Book-to-Market Stocks using Financial Statement Analysis”

Discussion of “Separating Winners from Losers among Low Book-to-Market Stocks using Financial... The conference paper by Mohanram (2005) provides evidence on the success of contextual financial statement analysis in the low book-to-market (i.e., glamour) stock setting. The economic benefits of the strategy are concentrated in the identification of glamour firms that will ultimately underperform the market. In contrast to traditional accounting-based anomalies, Mohanram’s growth-based trading strategy is stronger among large, heavily followed firms, suggesting that the mechanism behind the mispricing of glamour firms is different than the traditional information environment and dissemination arguments found in other settings. Despite the robustness of the reported results, the strategy faces implementation constraints due to (1) the relative costs associated with gathering industry-adjusted data and (2) the frictions and costs associated with capitalizing on expected price declines over a long horizon. Finally, the relative benefits of contextual analysis need to be assessed against the predictive benefits accruing to traditional financial statement analysis-based investment techniques. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Accounting Studies Springer Journals

Discussion of “Separating Winners from Losers among Low Book-to-Market Stocks using Financial Statement Analysis”

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 2005 by Springer Science+Business Media, Inc.
Subject
Business and Management; Accounting/Auditing; Corporate Finance; Public Finance
ISSN
1380-6653
eISSN
1573-7136
D.O.I.
10.1007/s11142-005-1527-3
Publisher site
See Article on Publisher Site

References

  • Arbitrage Risk and the Book-to-Market Anomaly
    Ali, A.; Hwang, L.; Trombley, M.
  • Investor Sophistication and the Mispricing of Accruals
    Collins, D.; Gong, G.; Hribar, P.
  • The Cross-Section of Expected Stock Returns
    Fama, E.; French, K.
  • Industry Costs of Equity
    Fama, E.; French, K.

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