Possibly more damaging to this line of research is the fact that market returns and
accounting earnings measure fundamentally different economic constructs. Financial
reporting is concerned with presenting the economic history of an enterprise. This economic
history consists of contractually determined amovmts arising fi-om pasi exchanges.
Reported earnings cannot, and probably should not, anticipate profits fi-om future exchanges
that have not yet taken place. Market returns, on the other hand, are driven
primarily by revisions in the market expectation of future profits. Until accounting
regulators decide that reported earnings should include anticipated profits from future
exchanges (that is, until we abandon the "revenue recognition" principle), it is difficult
to see how higher correlation with contemporaneous returns should have any standard
setting implications.