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Benford's Law.

Discussion in 'General Investing Discussion' started by Tropo, 13th Oct, 2011.

  1. Tropo

    Tropo Well-Known Member

    17th Aug, 2005
    "So according to Benford's law, accounting statements are getting less and less representative of what's really going on inside of companies.
    The major reform that was passed after Enron and other major accounting standards barely made a dent.

    While these time series don't prove anything decisively, deviations from Benford's law are compellingly correlated with known financial crises, bubbles, and fraud waves.
    And overall, the picture looks grim.

    Accounting data seem to be less and less related to the natural data-generating process that governs everything from rivers to molecules to cities.
    Since these data form the basis of most of our research in finance, Benford's law casts serious doubt on the reliability of our results.
    And it's just one more reason for investors to beware".

    more ... Studies in Everyday Life: Benford's Law and the Decreasing Reliability of Accounting Data for US Firms