Forensic accounting research

Forensic accounting research

20-07-2016 | From the field

Macquarie applies Benford’s law to identify firms which may be manipulating their accounting data, or perhaps even engaging in outright fraud. According to this law, there is a natural frequency of 1 to 9 occurring as the first digit in a number, with the chance of 1 for instance being around 30%, and the chance of 9 less than 5%.

  • David Blitz
    Head of Quant Research

If the figures in the financial statements of a company show a large deviation from Benford’s law, this could be a reason for suspicion. They find a Sharpe ratio of about 0.5 for a sector neutral top-minus-bottom quintile strategy based on this idea. The correlation with traditional quantitative factors is found to be low, which suggests it could be a nice diversifier in multi-factor models.

Our main concern is whether it is really strong enough to improve upon a traditional multi-factor model. The robustness across different markets would also need to be investigated further.

* Macquarie, “Japan Dynamics: Quant Strategy – Red Flag Reporting”, 16 July 2014

Manténgase al día de las últimas perspectivas sobre inversión cuantitativa
Manténgase al día de las últimas perspectivas sobre inversión cuantitativa
From the field
From the field

Nuestros investigadores publican multitud de informes basados en sus propios estudios empíricos; también siguen los análisis cuantitativos que hacen los demás. Comentarios de nuestro responsable de análisis cuantitativo para renta variable, David Blitz, sobre publicaciones externas de gran relevancia.

Artículos relacionados
Los temas relacionados con este artículo son: