This paper derives theoretical explanations for the increase in the returns-earnings R2 as earnings are aggregated over longer windows. Consistent with our intuition, the model shows that aggregation is useful because accounting lags cancel out over time, thus improving the returns-earnings...

We examine whether fair value accounting applied to goodwill impairment leads to unintended consequences. Under the fair-value-based goodwill impairment test, a firm's market value is often used as an important reference point for determining whether goodwill is impaired. A below-one...

We examine whether financial analysts understand the valuation implications of unconditional accounting conservatism when forecasting target prices. While accounting conservatism affects reported earnings, conservatism per se does not have an effect on the present value of future cash flows. We...

We propose a methodology to incorporate risk measures based on economic fundamentals directly in the valuation model. Fundamentals-based risk adjustment in the residual income valuation model is captured by the covariance of excess ROE with market-wide factors. We simplify the covariance risk...

We propose a methodology to incorporate risk measures based on economic fundamentals directly in the valuation model. Fundamentals-based risk adjustment in the residual income valuation model is captured by the covariance of excess ROE with market-wide factors. We simplify the covariance risk...

We examine how analysts whose forecasts lag those of timely analysts aid the price discovery process. We classify analysts as lead and follower analysts for a given firm based on the relative timeliness of their earnings forecasts over a two-year period. We find that news in forecasts of lead...

In tests of long-term performance, researchers are faced with several research design choices. For instance, when estimating abnormal returns, what specific firm characteristics should be used as matching criteria to select control firms? What weights should be placed on each characteristic?...

We invert the residual income valuation model (using current stock prices, current book value of equity and short-term forecasts of accounting earnings) to obtain an estimate of the expected rate of return for a portfolio of stocks. Our approach is analogous to the estimation of the internal...

This paper examines the performance of a 'composite' model of earnings prediction that integrates current earnings and current price as predictors of next year's earnings. The results show that current earnings (current price) play a key role in predicting future earnings when the ratio of...