I received some feedback on my last post regarding the Piotroski F-Score backtest. The comment suggested that I run the backtest for each of the ten discrete Piotroski Scores. I have been using quintiles for my fundamental backtests, but I did agree that in the case of the Piotroski Score it might make more sense to see the returns for each discrete score. The results are in the table below. Click on the table to get a more zoomed in view.
As you can see in the table above, F-Score 0 had a negative total return from January 2, 2000 to December 31, 2014. It is pretty rare to find a fundamental backtest that actually results in a negative overall return over 15-year. On the opposite end of the F-Score spectrum, F-Score 9 achieved annualized returns more than double the S&P 500 Equal Weight Index. The returns for the Piotroski F-Score display a very linear trend from zero through 9.
As you can see in the bar chart above, average excess returns are negative for F-Scores below 3. The average excess returns then climb up from just over zero for F-Score 3 and then climb steadily to about 5% for F-Score 8. Then the average excess returns jump to 9% for F-Score 9. There appears to be something a bit special for getting a perfect score. However, we have to be careful not to draw too many conclusions about F-Score 9, since the average portfolio size for Piotroski Score 9 is only 34 positions.
Did you see anything substantially different in this detailed backtest than you did in the original Piotroski F-Score Backtest that used quintiles? Please share your thoughts in the comments section below.