Accruals and Aggregate Stock Market Returns

David Hirshleifer, Kewei Hou and Siew Hong Teoh

MPRA Paper from University Library of Munich, Germany

Abstract: Past research has shown that the level of operating accruals is a negative cross-sectional predictor of stock returns. This paper examines whether the accrual anomaly extends to the aggregate stock market. In contrast with cross-sectional findings, there is no indication that aggregate operating accruals is a negative time series predictor of stock market returns; the relation is strongly positive for the market portfolio and also for several sector and industry portfolios. In addition, innovations in accruals are negatively contemporaneously associated with market returns, suggesting that changes in accruals contain information about changes in discount rates, or that firms manage earnings in response to market-wide undervaluation.

Keywords: accruals; return predictability; stock market returns; market efficiency; asset pricing; anomalies; accounting; earnings fixation (search for similar items in EconPapers)
JEL-codes: G12 G14 M41 (search for similar items in EconPapers)
Date: 2007-09-23
New Economics Papers: this item is included in nep-acc, nep-cfn and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:5197

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