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Aggarwal, N. and Gupta, M. (2009). Do high book-to-market stocks offer returns to fundamental analysis in India? Decision, 36(2), 155-175.

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Article

Financial Statement Analysis to Predict Stock Returns of Listed Consumer Goods Firms in Nigeria

1Department of Accounting, Benue State University, Makurdi


Journal of Finance and Accounting. 2018, Vol. 6 No. 1, 27-33
DOI: 10.12691/jfa-6-1-4
Copyright © 2018 Science and Education Publishing

Cite this paper:
Clement C. M. Ajekwe, Adzor Ibiamke. Financial Statement Analysis to Predict Stock Returns of Listed Consumer Goods Firms in Nigeria. Journal of Finance and Accounting. 2018; 6(1):27-33. doi: 10.12691/jfa-6-1-4.

Correspondence to: Adzor  Ibiamke, Department of Accounting, Benue State University, Makurdi. Email: nickibiamke@yahoo.com

Abstract

This study examines whether the application of an accounting fundamental strategy to select stocks of a portfolio can systematically yield significant and positive excess market buy-and-hold returns after one year of portfolio formation. Using financial statement information and the “direct approach”, multiple logit models were developed to predict the year-ahead returns. The coefficient estimates of these models were used to generate Pr measures which were used to formulate investment strategies. Specifically, the investment strategy involved buying stocks with high Pr values and selling stocks with low Pr values was examined. The study found that eleven accounting ratios predict stock returns accurately in 76.6% of the cases. This robust ability to accurately predict stock returns is evidence that conducting fundamental analysis and taking investment positions on the basis of Pr values can be a fruitful strategy for investors in Nigeria. Thus, the study recommends that investors evaluate their investments in equity for 12 months before making a buy or sell decision using a Pr strategy to avoid loses or missing opportunities.

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