Contextual Fundamental Analysis Through the Prediction of Extreme Returns

Contextual Fundamental Analysis Through the Prediction of Extreme Returns This study examines the usefulness of contextual fundamental analysis for the prediction of extreme stock returns. Specifically, we use a two-stage approach to predict firms that are about to experience an extreme (up or down) price movement in the next quarter. In the first stage, we define the context for analysis by identifying extreme performers; in the second stage we develop a context-specific forecasting model to separate winners from losers. We show that extreme performers share many common market-related attributes, and that the incremental forecasting power of accounting variables with respect to future returns increases after controlling for these attributes. Collectively, these results illustrate the usefulness of conducting fundamental analysis in context. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Accounting Studies Springer Journals

Contextual Fundamental Analysis Through the Prediction of Extreme Returns

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Publisher
Springer Journals
Copyright
Copyright © 2001 by Kluwer Academic Publishers
Subject
Business and Management; Accounting/Auditing; Corporate Finance; Public Finance
ISSN
1380-6653
eISSN
1573-7136
D.O.I.
10.1023/A:1011654624255
Publisher site
See Article on Publisher Site

Abstract

This study examines the usefulness of contextual fundamental analysis for the prediction of extreme stock returns. Specifically, we use a two-stage approach to predict firms that are about to experience an extreme (up or down) price movement in the next quarter. In the first stage, we define the context for analysis by identifying extreme performers; in the second stage we develop a context-specific forecasting model to separate winners from losers. We show that extreme performers share many common market-related attributes, and that the incremental forecasting power of accounting variables with respect to future returns increases after controlling for these attributes. Collectively, these results illustrate the usefulness of conducting fundamental analysis in context.

Journal

Review of Accounting StudiesSpringer Journals

Published: Oct 3, 2004

References

  • Investment Performance of Common Stocks in Relation to Their Price Earnings Ratios: A Test of the Efficient Market Hypothesis
    Basu, S.
  • Measurement Error and Nonlinearity in the Earnings-Returns Relation
    Beneish, M. D.; Harvey, C. R.
  • Fundamentals and Stock Returns in Japan
    Chan, L. K. C.; Hamao, Y.; Lakonishok, J.
  • The Cross-Section of Realized Stock Returns: The Pre-Compustat Evidence
    Davis, J. L.
  • The Cross-Section of Expected Stock Returns
    Fama, E. F.; French, K. R.

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