Postfundamentals Price Drift in Capital Markets: A Regression Regularization Perspective
Doron Avramov, Guy Kaplanski, Avanidhar Subrahmanyam
Management Science · 2022 · Volume 68 · Issue 10
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. This paper was accepted by Gustavo Manso, finance.
Keywords
regression regularization techniques, cross-section of returns, accounting fundamentals, capital markets
Enable JavaScript for citation tools and additional paper interactions.