Agnostic fundamental analysis works

Söhnke Bartram and Mark Grinblatt

Journal of Financial Economics, 2018, vol. 128, issue 1, 125-147

Abstract: To assess stock market informational efficiency with minimal data snooping, we take the view of a statistician with little knowledge of finance. The statistician uses techniques such as least squares to estimate peer-implied fair values from the market values of replicating portfolios with the same accounting statements as the company being valued. Divergence of a company's peer-implied value estimate from its market value represents mispricing, motivating a convergence trade that earns risk-adjusted returns of up to 10% per year and is economically significant for both large and small cap firms. The rate of convergence decays to zero over the subsequent 34 months.

Keywords: Valuation; Asset pricing; Market efficiency; Fundamental analysis; Point-in-Time; Theil-Sen (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (30)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:128:y:2018:i:1:p:125-147

DOI: 10.1016/j.jfineco.2016.11.008

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