Historical reflections and empirical studies on the effectiveness of fundamental analyses
Date: 26 June 2014
Venue: University of Antwerp, Hof van Liere, Elsschot & Greshamzaal - Prinsstraat 13 - 2000 Antwerp
PhD candidate: Steven De Klerck
Principal investigator: Prof Marc De Ceuster
Short description: PhD defense Steven De Klerck - Faculty of Applied Economics
Abstract: In this dissertation based on a critical review on both the accounting literature and the finance literature in combination with three empirical chapters we shed light on the process of a successful fundamental analysis. Based on the literature overview we recognize the existence of important historical and cross-sectional breaks within the above-mentioned research domains. In short the attention in the accounting literature shifted from fundamentals-based investment strategies focusing on historical financial statement information towards forecast-oriented strategies. Accounting and finance mainly differ as far as it concerns the degree of detail with which a fundamental analysis is performed. Based on a glance on both the accounting and finance literature consequently the question can be raised how the risk-adjusted returns of the different fundamentals-based investment strategies relate to each other. The empirical chapters provide an insight into this issue based on three empirical studies. In the first chapter four fundamentals-based investment strategies (which differ in terms of focusing on the future as well as the degree of detail) are mutually compared. The second chapter focuses on the contextual forecasting of company results within the residual operating income model. In a third chapter a light is shed on the dynamics underlying F-SCORE and the returns involved with persistence in business economic performance (in terms of F-SCORE). Overall we conclude, based on both the introduction and the empirical results, that the most effective process of a fundamental analysis (in terms of risk-adjusted returns) concentrates on a restricted number of past-oriented valuation criteria on the one hand and a restricted number of measures regarding fundamental strength on the other.