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A test of the Investor's Daily stock ranking system
Author(s) -
Olson Dennis O.,
Nelson John,
Witt Craig,
Mossman Charles
Publication year - 1998
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/j.1540-6288.1998.tb01375.x
Subject(s) - inefficiency , volatility (finance) , financial economics , portfolio , stock (firearms) , economics , abnormal return , arbitrage , profitability index , trading strategy , econometrics , monetary economics , business , stock exchange , finance , microeconomics , mechanical engineering , engineering
This paper examines the profitability of trading strategies derived from stock rankings published in Investor's Business Daily. The best system provides market‐adjusted abnormal monthly returns of 1.81% from buying S&P 500 stocks, and a 3.18% abnormal return on an arbitrage portfolio. Stocks selected for trading have above average volatility, but a portion of abnormal return may be a reward for identifying stocks with short‐run sustainable price momentum. Results seem indicative of market inefficiency, but the phenomena may be temporary since abnormal returns are lower during the second half of the data set.