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 con...

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Bibliographic Details
Published in:Review of accounting studies 2001-06, Vol.6 (2-3), p.165
Main Authors: Beneish, Messod D, Lee, Charles M C, Tarpley, Robin L
Format: Article
Language:English
Subjects:
Accounting
Capital expenditures
Earnings
Estimating techniques
Financial statement analysis
Forecasting
Growth stocks
Investment advisors
Mathematical models
R&D
Rates of return
Research & development
Stock prices
Studies
Variables
Volatility
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Summary: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. [PUBLICATION ABSTRACT]
ISSN:1380-6653
1573-7136
DOI:10.1023/a:1011654624255