Do good fundamentals generate alpha?



Linha de Pesquisa
Administração e Economia de Negócios

Luís Chagas, Ricardo Leal, Raphael Roquete



Revista de Educação e Pesquisa em Contabilidade (REPeC), v. 14, n. 2, pp. 221-236. Objective: To verify abnormal risk-adjusted returns in Brazilian stock portfolios formed according to the F-Score that indicates the presence of good fundamentals. Method: The sample has an average of 146 companies per year, includes the period of adoption of the International Financial Reporting Standards (IFRS) from July 2008 to June 2018 and uses equally weighted portfolios formed at the end of June of each year with information from the previous year. Results: The high F-Score portfolio showed greater average returns, lower beta, and a positive and significant alpha that disappeared in the sub-period initiating after the full adoption of IFRS. Significant coefficients for the small capitalization risk premium and egalitarian weighting suggest that large companies do not dominate its performance. High and low F-Score portfolios cannot be characterized as value stocks. The low F-Score portfolio displayed a negative and significant coefficient for the moment factor, suggesting persistence of negative returns. Contributions: Portfolios with high F-Score may have less chance of catastrophic returns. The technique can be employed by less sophisticated investors to build defensive portfolios of companies with good fundamentals.

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