Accounting Anomalies and Fundamental Analysis: A Review of Recent Research Advances
142 PagesPosted: 16 Feb 2011
Date Written: September 15, 2010
We survey recent research in accounting anomalies and fundamental analysis. We use forecasting of future earnings and returns as our organizing framework and suggest a roadmap for research aiming to document the forecasting benefits of accounting information. We combine this with opinions from the academic and practitioner communities to critically evaluate key clusters of papers about accounting anomalies and fundamental analysis disseminated over the last decade. Finally, we provide a new analysis on how an ex ante and ex post treatment of risk and transaction costs affects the accrual and PEAD anomalies, and offer suggestions for future research.
Keywords: Accruals, Anomalies, Forecasting, Fundamental Analysis, Market
JEL Classification: G12, G14, M41
Suggested Citation:Suggested Citation
Richardson, Scott A. and Wysocki, Peter D. and Tuna, A. Irem, Accounting Anomalies and Fundamental Analysis: A Review of Recent Research Advances (September 15, 2010). Available at SSRN: https://ssrn.com/abstract=1762124 or http://dx.doi.org/10.2139/ssrn.1762124
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The purpose of this paper is an attempt to reach a better stock valuation model of the Fundamental Analysis Approach, by reviewing the theoretical foundations and literature reviews.
By reviewing the theoretical foundations for each model of the fundamental analysis models, and sequentially beginning of the Discounted Dividend Model (DDM), through a Multiplier Models, and finally the Discounted Cash Flow Model (DCFM), we find that all these models have strengths, despite the lack of accuracy, because it is required financial efficiency market. Recently Ohlson (1995) stated the simulated benefit in the formulation of the Residual Income Model (RIM). The Ohlson Model identifies the relationship between stock values and accounting variables.
By reviewing the literature reviews, in financial markets, we conclude that the best model that can be relied upon to predict stock value, that proved credibility in both emerging and developed markets, is Residual Income Model (RIM), which doesn’t require financial efficiency for its application.