Creating quality portfolios using score-based models: a systematic review

Ritesh Khatwani, Mahima Mishra, V. V. Ravi Kumar, Janki Mistry and Pradip Kumar Mitra ()
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Ritesh Khatwani: Symbiosis International (Deemed University)
Mahima Mishra: Abu Dhabi School of Management
V. V. Ravi Kumar: Symbiosis International (Deemed University)
Janki Mistry: Veer Narmad South Gujarat University
Pradip Kumar Mitra: Vivekanand Education Society’s Institute of Management Studies and Research

Palgrave Communications, 2024, vol. 11, issue 1, 1-12

Abstract: Abstract This paper aims to find out if a score-based investment strategy could be developed using different scales. To achieve this objective several academic sources have been used and it is found that score-based investment not only outperforms the market but also protects the investors from the risks arising out of avoidable poor investments in the market. The project is a summary of bibliographic outcome of several scholars who have attempted to find out the impact of score-based investments in their respective markets. Score-based investments are typically dependent on accounting parameters and changes in these parameters signal that a firm’s performance is geared up for a change. The study has been done using a systematic literature review. Several research papers in peer-reviewed journals were referred starting from 1934 to 2021. Various equity-based scores like F-score, G score, L score and C score and debt-based scores like Z score, O score and M score are used for the construction of portfolios. It has been found that across geographies the use of score-based investing is known to give superior returns as compared to the market. Several pieces of literature provide the evidence. Developed countries like USA, UK, Australia, and Canada have a large concentration of literary sources that point to the evidence of score-based investing. At the same time, it is also pertinent to note that the performance of such techniques works relatively better in markets that are not efficient and where asymmetry in information flow is evident.

Date: 2024
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DOI: 10.1057/s41599-024-03888-4

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