Fundamental Analysis, Future Earnings, and Stock Prices
JOURNAL OF ACCOUNTING RESEARCH, Vol 35, No 1, Spring 1997
Posted: 4 Dec 1996
This paper examines empirical relations between rules of fundamental analysis and actual future earnings changes, analysts' earnings forecast revisions, and contemporaneous stock returns. Our results indicate that many of the fundamental signals are related to future earnings and forecast revisions in the same way they are related to returns, however some significant exceptions are noted. Conditioning the relations on variables reflecting the macroeconomic, firm-specific and industry-specific contexts in which firms operate provides some further refinement to our understanding of the information contained in the fundamental signals. Additional tests suggest analysts' forecast revisions display generalized underreaction to the future earnings information contained in some of the fundamental signals.
JEL Classification: G12, G14, M41
Suggested Citation: Suggested Citation