Abstract
Using Swedish data, this study investigates whether financial statement information can be used to predict changes in the medium-term book return on owners' equity and subsequently evaluates the performance of trading strategies based on such predictions. A univariate prediction model based on the past book return has higher prediction accuracy than more elaborate models that include additional accounting numbers. The main trading strategy generates a hedge position return of 29% over a three-year holding period. Interestingly, most of the return is attributable to the long position. However, the results are found to be sensitive to the choice of return metric.