Abstract Investigating the performance of models based on fundamental signals that better reflect market expectations for future earnings and the influence of behavioral factors on the explanatory power of such determinants are a challenging quest in the literature. This paper examines the contribution of a value creation approach (RIV-EBO model) to explain stock returns relative to a simpler strategy based on book-to-market ratio (B/P) and possible behavioral biases impacting analysts’ accuracy in an emerging market with lower informational efficiency such as the Brazilian capital market. Our results suggest a safety quality attribute in favor of the RIV-EBO model and once compared to the U.S. market, indicate the need for improvement in the quality of local analysts’ earnings forecasts for enhancing its predictive power for stock returns.
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