Fundamental analysis and stock returns: Korean evidence

초록

This study examines whether Piotroski’s (2000) F-score, a composite measure of fundamental strength based on simple accounting signals, predicts future stock returns in the Korean equity market. Using a comprehensive sample of non-financial firms listed on the Korea Exchange from 2000 to 2022, we document several key findings. When stocks are sorted into quintile portfolios based on their F-scores each year, average abnormal returns increase monotonically across quintiles, with the return spread between the top and bottom quintiles yielding approximately 18%. Results from both cross-sectional and time-series tests show that the F-score remains a significant predictor of abnormal returns. The return difference between winners (F-score > 5) and losers (F-score < 5) is positive in 20 out of 23 years. These findings indicate that the predictive power of the F-score cannot be folly explained by systematic risk. Component-level analysis shows that operating cash flow and equity issuance status are the main sources of the F-score’s predictive power. We also document that firms with high F-scores are more likely to experience subsequent improvements in profitability. Overall, our findings suggest that the F-score serves as a robust and economically meaning ful indicator of both future stock returns and future earnings performance in the Korean market. © 2025, Korean Accounting Association.

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