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A Market Scholar Strikes Gold

As an accounting professor at the University of Michigan, Richard G. Sloan was happy to receive a call inviting him to speak to a couple of hundred top institutional investors in New York City. Trouble was, Sloan was going to be on sabbatical in Western Australia when the conference was held in March. So Bernstein Research, the conference sponsor, flew him back -- in business class.

Such is 39-year-old Sloan's star power now that a Wall Street firm will hire him to travel 30 hours to give a one-hour talk and chat with some clients. His acclaim is founded on a paper he published in 1996 in a tiny journal, The Accounting Review. Using decades of data, Sloan was the first to find that investors habitually overlook the role accounting estimates play in determining a company's earnings and hence its stock performance. He sorted through clues in the financial reports and came up with the 10% of companies using the biggest estimates and the 10% using the smallest. His discovery, now known as the accrual anomaly, revealed that companies routinely using the highest estimates had stock prices most likely to fall, while those with the lowest tended to rise.