The paper constructs the composite score
based on fi nancial signals. A realization of each
financial signal is classified as either good or
bad depending on its implication to stock future
returns, with 0 and 1 score representing bad and
good implication, respectively. The composite
score (SCORE) is the sum of binary scores (1 or
0) marked from each individual fi nancial signals.
This paper implements all nine fundamental
signals used in Piotroski (2000). These nine signals
are divided into three categories: profi tability,
liquidity/leverage, and operating effi ciency.