Postfundamentals Price Drift in Capital Markets: A Regression Regularization Perspective

Doron Avramov, Guy Kaplanski, Avanidhar Subrahmanyam

Research output: Contribution to journalArticlepeer-review

4 Scopus citations

Abstract

Regression regularization techniques show that deviations of accounting fundamentals from their preceding moving averages forecast drifts in equity market prices. Deviations-based predictability survives a comprehensive set of prominent anomalies. The profitability applies strongly to the long leg and survives value weighting and excluding microcaps. We provide evidence that the predictability arises because investors anchor to recent means of fundamentals. A factor based on our fundamentals-based index yields economically significant intercepts after controlling for a comprehensive set of other factors, including those based on profit margins and earnings drift.

Original languageAmerican English
Pages (from-to)7658-7681
Number of pages24
JournalManagement Science
Volume68
Issue number10
DOIs
StatePublished - Oct 2022
Externally publishedYes

Bibliographical note

Publisher Copyright:
Copyright: © 2021 INFORMS.

Keywords

  • accounting fundamentals
  • capital markets
  • cross-section of returns
  • regression regularization techniques

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