Postfundamentals Price Drift in Capital Markets: A Regression Regularization Perspective

Doron Avramov (), Guy Kaplanski and Avanidhar Subrahmanyam ()
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Doron Avramov: IDC Herzliya, Herzliya 4610101, Israel
Avanidhar Subrahmanyam: Anderson Graduate School of Management, University of California at Los Angeles, Los Angeles, California 90095

Management Science, 2022, vol. 68, issue 10, 7658-7681

Abstract: Regression regularization techniques show that deviations of accounting fundamentals from their preceding moving averages forecast drifts in equity market prices. Deviations-based predictability survives a comprehensive set of prominent anomalies. The profitability applies strongly to the long leg and survives value weighting and excluding microcaps. We provide evidence that the predictability arises because investors anchor to recent means of fundamentals. A factor based on our fundamentals-based index yields economically significant intercepts after controlling for a comprehensive set of other factors, including those based on profit margins and earnings drift.

Keywords: regression regularization techniques; cross-section of returns; accounting fundamentals; capital markets (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (3)

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