Fundamental Analysis and the Prediction of Earnings

Abstract

This paper takes fundamental analysis research beyond the spatial and temporal bounds of previous studies. We investigate how detailed financial statement data enter the decisions of market makers by examining how current changes in the fundamental signals chosen can provide information on subsequent earnings changes. Using global data from 1990 to 2000, we extend the body of research using fundamental signals for prediction of future earnings changes. Contextual factors that may influence this predictive ability are also investigated. Results indicate that the fundamental signals are significant predictors of both short- and long-term future earnings changes. Contextual factors that include prior earnings news, industry membership, macroeconomic conditions and country of incorporation are all demonstrated to influence this relationship. Research results provide evidence to support the use of fundamental analysis. [ABSTRACT FROM AUTHOR]