In this paper, we survey research in accounting anomalies and fundamental analysis, using the forecasting of future earnings and returns as our organizing framework. We also suggest a road map for research aiming to document the forecasting benefits of accounting information.
We combine this with a survey of investment professionals and leading academics about their views on academic research on anomalies and fundamental analysis, two areas that have important and immediate applications to actual practice.
Both the practitioner and academic respondents placed high importance on research into: (i) empirical tests of investor behavior; (ii) empirical tests of asset pricing, risk and factor models; (iii) empirical research on forecasting firm and industry fundamentals; and (iv) the discovery and investigation of new “anomalies” or signals.
Based on (i) the prominence of the accruals anomaly in the literature, and (ii) practitioner interest in future innovations related to empirical tests of investor behavior and empirical tests of asset pricing, risk and factor models, we conduct our own empirical analyses to help advance some concepts and approaches to be considered and applied in future research studies.
In addition, our analysis shows that, while the negative relation between accruals and future stock returns is robust to the comprehensive treatment of risk and transaction costs, the relation has greatly attenuated over time. One could conclude that the information in accruals is now fully priced by the market.
Finally, we provide a new analysis on how an ex ante and ex post treatment of risk and transaction costs affects the accrual and post-earnings announcement drift anomalies.