Combining Financial Statement Analysis among Low Book-To-Market Stocks with Momentum to Enhance Returns:Evidence from Indian Stock Mayrket

This study focused combining two popular investment strategies viz., financial statement analysis and momentum strategy with focus on low book-to-market stocks. In order for the result to be practically useful all sorts of transaction costs as well as the trade restrictions were duly incorporated. Using a combination of Mohanram (2005) and Jegadeesh and Titman (1993) framework among low book-to-market stocks, it was found that financial statement analysis helped identifying such stocks among low book-to-market stocks which produce significant excess returns across holding periods of 3, 6, and 12 months. On combining this strategy with pure momentum, significant improvement in returns were seen across 3 and 6 months formation period for all holding periods of 3,6, and 12 months. Significant Jensen's Alpha figures corroborated these results. However, for 12 months formation period, the value addition by momentum declined and became negative for 12 months holding period. This shows a combination of financial statement analysis and momentum among low book-to-market stocks can bring significant improvement in returns; the results however are restricted to short formation periods only.