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Financial Statement Information, the Prediction of Book Return on Owners' Equity and Market Efficiency: The Swedish Case
Author(s) -
Skogsvik Stina
Publication year - 2008
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/j.1468-5957.2008.02099.x
Subject(s) - equity (law) , univariate , absolute return , financial statement , financial statement analysis , position (finance) , return on equity , holding period return , actuarial science , return on assets , econometrics , financial economics , economics , business , finance , accounting , financial ratio , investment performance , mathematics , statistics , microeconomics , multivariate statistics , return on investment , profitability index , audit , production (economics) , political science , law
Using Swedish data, this study investigates whether financial statement information can be used to predict changes in the medium‐term book return on owners' equity and subsequently evaluates the performance of trading strategies based on such predictions. A univariate prediction model based on the past book return has higher prediction accuracy than more elaborate models that include additional accounting numbers. The main trading strategy generates a hedge position return of 29% over a three‐year holding period. Interestingly, most of the return is attributable to the long position. However, the results are found to be sensitive to the choice of return metric.