Market underreaction and predictability in the cross-section of Japanese stock returns [An article from: Journal of Multinational Financial Management]

This digital document is a journal article from Journal of Multinational Financial Management, published by Elsevier in 2005. The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.

Description:
In this paper, we analyze the relationship between financial information and stock returns for a sample of firms listed on the Tokyo Stock Exchange. Firm-specific information is captured by way of a score indicative of the firm's cash flow generating potential. The results show that score-based portfolio strategies can produce significant abnormal returns. The excess return on high-score portfolios does not appear to result from a higher exposure to risk factors. The predictability of stock returns does not derive either from price momentum. We find that large firms offer little profits to score-based portfolio strategies. Most of the abnormal returns are generated by small stocks. The evidence is supportive of a market underreaction to the financial information released by smaller, hence less researched, firms.