Abstract
We show that when applied to the 200 largest stocks in the Australian market, the Piotroski signal generates long/short portfolio returns of 1.0% per month. However, much of this return is on the short side. The long/short return is much higher against smaller cap stocks and is evenly balanced between the long and short sides. Positive returns are generated in 74% of months. The premium to high F score stocks is robust to controls for the size, value and momentum risk premia. We use three separate tests to show that the standard explanation for the power of the F score signal - analyst neglect of the news contained in small stocks - isn't supported by the data. Other underlying forces must be at work.
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