Joint Fundamental and Technical Analysis

What kinds of fundamental and technical indicators play well together? In their August 2018 paper entitled “When Buffett Meets Bollinger: An Integrated Approach to Fundamental and Technical Analysis”, Zhaobo Zhu and Licheng Sun test performance of six stock portfolios that jointly exploit one of three popular fundamental indicators and one of two popular technical indicators, as follows:

1. Piotroski’s FSCORE – each quarter long (short) stocks having high (low) scores summarizing a composite of accounting variables.
2. Standardized unexpected earnings (SUE) – each quarter long (short) the fifth of stocks with the highest (lowest) earnings surprises.
3. Return on equity (ROE) – each quarter long (short) the fifth of stocks with the highest (lowest) ROEs.
4. Moving averages (MA) – each month long (short) stocks with 20-day MAs above (below) 125-day MAs at the end of the prior month.
5. Bollinger bands (BOLL) – long (short) stocks below (above) one standard deviation of daily prices below (above) the average prices over the past 20 trading days.

Specifically, for each of six fundamental-technical pairs, they each month reform a portfolio that is long (short) stocks with both fundamental and technical buy (sell) signals. For risk adjustment, they employ widely used 5-factor (market, size, book-to-market, profitability, investment) alpha. Using accounting data and stock returns for a broad sample of U.S. common stocks priced at least $5, plus monthly factor returns, during January 1985 through December 2015, they find that:

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