Evidence supporting the use of fundamental analysis as a way to earn above-average risk-adjusted returns includes ______.

A. the fact that private money managers using fundamental analysis earn returns superior to those who do not
B. the continued widespread use of fundamental analysis as a forecasting tool
C. several balance sheet-based indicators that continue to have forecasting ability
D. studies documenting very weak independence in stock returns

Correct Answer: C

Fundamental analysis is based on the use of public information. Tests using P/E ratios, market-to-book ratios, etc. appear to have predictive ability. Tests looking at professional money managers indicate that they do not earn excess risk-adjusted returns. Widespread use of fundamental analysis is not evidence of it adding value. Statistical independence has nothing to do with fundamental analysis.