Fundamental analysis of banks: the use of financial statement information to screen winners from losers

Partha Mohanram (), Sasan Saiy () and Dushyantkumar Vyas ()
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Partha Mohanram: University of Toronto
Sasan Saiy: University of Waterloo
Dushyantkumar Vyas: University of Toronto

Review of Accounting Studies, 2018, vol. 23, issue 1, No 6, 200-233

Abstract: Abstract This study investigates the efficacy of a fundamental analysis-based approach to screen U.S. bank stocks. We construct an index (BSCORE) based on fourteen bank–specific valuation signals. We document a positive association between BSCORE and future profitability changes, as well as current and one-year-ahead stock returns, implying that BSCORE captures forward looking information that the markets are yet to impound. A hedge strategy based on BSCORE yields positive hedge returns for all but two years during our 1994–2014 sample period. Results are robust to partitions of size, analyst following, and exchange listing, and persist after adjusting for risk factors. We further document a positive relation between BSCORE and future analyst forecast surprises as well as earnings announcement period returns, and a negative relation between BSCORE and future performance-based delistings. Overall, our results show that a fundamental analysis-based approach can provide useful insights for analyzing banks.

Keywords: Fundamental analysis; Bank stocks; Stock screening; Market efficiency; Financial statement analysis; G32; M41 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (6)

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DOI: 10.1007/s11142-017-9430-2

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