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Contextual Fundamental Analysis Through the Prediction of Extreme Returns

Author

Listed:
  • Messod D. Beneish

    (Indiana University)

  • Charles M. C. Lee

    (Cornell University)

  • Robin L. Tarpley

    (Georgetown University)

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.

Suggested Citation

  • Messod D. Beneish & Charles M. C. Lee & Robin L. Tarpley, 2001. "Contextual Fundamental Analysis Through the Prediction of Extreme Returns," Review of Accounting Studies, Springer, vol. 6(2), pages 165-189, June.
    • Handle: RePEc:spr:reaccs:v:6:y:2001:i:2:d:10.1023_a:1011654624255
    DOI: 10.1023/A:1011654624255
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    References listed on IDEAS

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    Cited by:

    1. Mary E. Barth & Amy P. Hutton, 2004. "Analyst Earnings Forecast Revisions and the Pricing of Accruals," Review of Accounting Studies, Springer, vol. 9(1), pages 59-96, March.

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