This paper documents that the earnings yield and book-to-price combine to predict equity returns in a way that is consistent with the rational pricing of risk. It is well known that earnings yields predict returns in the cross-section, consistent with standard formulas that show that the...

Historical cost accounting deals with uncertainty by deferring the recognition of earnings until the uncertainty has largely been resolved. Such accounting affects both earnings and book value, and produces expected earnings growth deemed to be at risk. This paper shows that the...

This paper documents that the earnings yield and book-to-price combine to predict equity returns in a way that is consistent with the rational pricing of risk. It is well known that earnings yields predict returns in the cross-section, consistent with standard formulas that show that the...

This paper proposes an accounting for revenues as an alternative to the proposals currently begin aired by the FASB and IASB. Existing revenue recognition rules are vague, resulting in messy application, so the Boards are seeking a remedy. However, their proposals replace the traditional...

This paper constructs a fundamental pricing factor based on observed accounting information. In contrast to standard models where accounting data often enter via data dredging, the factor is founded on consumption-based asset pricing theory and accounting principles that connect accounting...

Value stocks earn higher returns than growth stocks on average, but a “value” position can turn against the investor. Fundamental analysis can explain this so-called value trap: the investor may be buying earnings growth that is risky. Both E/P and B/P, come into play: E/P (or P/E) indicates...