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

8 Pages Posted: 3 Oct 2018

See all articles by Clement Ajekwe

Clement Ajekwe

Benue State University

Adzor Ibiamke

Nigerian Defence Academy

Date Written: August 11, 2018

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 stocked returns accurately in 76.6% 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.

Keywords: Financial Statement Analysis, Future Returns, Investment Strategy, Logit Regression, Nigeria

JEL Classification: G14, M40, M41

Suggested Citation

Ajekwe, Clement and Ibiamke, Adzor, Financial Statement Analysis to Predict Stock Returns of Listed Consumer Goods Firms in Nigeria (August 11, 2018). Available at SSRN: https://ssrn.com/abstract=3247805 or http://dx.doi.org/10.2139/ssrn.3247805

Clement Ajekwe

Benue State University ( email )

Along Gboko Rd, P.M.B.102119 Makurdi-Gboko Rd
Makurdi, 97001
Nigeria

Adzor Ibiamke (Contact Author)

Nigerian Defence Academy ( email )

Afaka
Kaduna
Kaduna
Nigeria

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