Dreaming of Beating the Market : A Fundamental Analysis Study on the Stockholm Stock Exchange

Sammanfattning: The aim of this paper is to test and further improve fundamental analysis models developed by Piotroski (2000) and Rados and Lovric (2009). The improvement seeks to reverse the information in the previous models by taking relative importance and strength of both positive and negative fundamental signals into consideration. The theoretical framework used includes the efficient market hypothesis, fundamental analysis and investing in high book-to-market companies. The Piotroski model, two Rados’s and Lovric’s models and two variations of our model were tested on a portfolio consisting of high book-to-market companies from the Stockholm Stock Exchange during the period 1999-2008. The results show that our EDA Model was the most successful at identifying short selling candidates, as EDA Low portfolio rendered market adjusted returns of -19% on average. Moreover, our EDC model was the best performing at identifying buy-and-hold candidates, with an average annual market adjusted return of 31,5%. The success of our models implies that the market is not using the information captured by them fully and in a timely manner.