Black Swans and Forensic Accounting

The Accounting and Governance Risk (AGR) rating produced by GMI Ratings are designed to estimate the risk of securities fraud and/or litigation.  Yet, the AGR ratings have done a good job of generating positive equity returns relative to a broad market index.

This short article shows that most of the strong performance comes from avoiding “black swan” events. While the system is not perfect, it has been sufficiently robust to drive strong historical returns to equities.