ANALYZING THE PERFORMANCE OF HIGH AND LOW BOOK-TO-MARKET RATIO FIRMS WITH SPECIFIC REFERENCE TO INDIAN IT, PHARMACY AND BANKING STOCKS

Abstract

This paper tries to explore the Financial Performance of High and
Low Book-to-Market ratio firms with specific reference to Indian IT,
Pharmacy and Banking Stocks. Previous Literature has documented that
all High Book-to-Market ratio firms are financially distressed. It is also
been proved that high Book-to-Market stocks are those with poor
historical performance and have not received enough attention from the investors. Investors tend to be over pessimistic about the future performance of these stocks. Envisaging all these, the current research tries to prove all documented facts in the Indian Stock Market with specific reference to mentioned stocks. In this research work a simple financial score is designed to capture short term changes in firm’s
Profitability, Solvency, Liquidity, Earnings Stability and Accounting Conservatism. For this purpose Historical Financial Information is derived from various financial statements. Using Historical Financial Information is a method adopted in fundamental analysis which is helpful in predicting future stock returns and for explaining the momentum phenomenon in stock prices. The goal of this paper is to show that investors can create a stronger value portfolio by using simple historical
financial performance and identify winning and losing stocks.