Ranked market information as a stock return indicator

The paper is set up to evaluate, firstly, whether rankings of individual stocks according to some financial indicator contain additional information in excess of the information already contained in the levels of the indicators with respect to predictability of future returns. Secondly, we are interested in the relation between the predictive impact of the indicators and the state of the market at the time the predictions are made. Using monthly financial market information on the individual stocks in the S&P500 Index, for the period 1975-1993, we find that especially the filtered information contained in rankings according to the market indicators explain a significant part of the cross-sectional variation in future returns. Generally, the unconditional impact of the indicators seem to be unstable over time. However, for some of the indicators we map a clear relationship between the impact of the indicator and the specific market condition. This relationship is especially strong for the impact of ranked volatility.