One of the most controversial issues in today’s
investment world is the challenge posed to the
value of fundamental analysis as a reliable tool
to reach profitable investment decisions. Despite
it being supported by numerous studies as a
useful means of stock trading, the fundamental
analysis has raised many questions relating to
the efficient market hypothesis (EMH). According
to EMH, one cannot exploit both the historical
and publicly available information to gain profits
if a stock market is semi-strong form efficient.
Specifically, if the stock market is efficient, no
profitable trading strategy can be formed based
on published financial statements. However,
the fact that (1) numerous studies find that the
fundamental analysis is a useful tool to predict
future earnings and stock returns; and (2) financia