Empirical Study on the Application of Financial Analysis to Taiwan Stock Market

The financial statement analysis is always an important reference resource for making investment decisions. Hence, transforming the data in financial statements into useful information is a critical issue. We examine the profitability of a trading strategy which is based on “Stepwise Regression Procedure” designed to predict stock returns from accounting ratios with holding period of 1 month, 6 months and 1 year. This study finds that different industries as sample data have different financial ratios relevant to stock returns.

Over the 1991-2005 period, we find significant positive relation between 2 financial ratios and stock returns by using electronic industry as sample data. It produces highest average monthly excess return (1.53%) in April of 2006-2013 by holding stock with high EPS growth rate and ROE. On the contrary, there are either no significant results or no excess return with different holding period in finance industry.