 Time-varying risk, mispricing attributes, and the accrual premiumProdosh E. Simlai International Review of Financial Analysis, 2016, vol. 48, issue C, 150-161 Abstract: We examine the mispricing attributes of the accrual effect in the presence of time-varying common risk factors, which are not independent of aggregate economic conditions. We find that the persistence of unconditional abnormal returns for accrual-based portfolios is not independent of firm-level characteristics such as size and book-to-market ratio (BE/ME). However, after adjusting for time-varying risk measures, the premiums associated with accruals and firm fundamentals are distinct from one another. The empirical evidence shows that a long-short hedge portfolio based on accruals and BE/ME generates significant abnormal returns even in the presence of time-varying risk. Taken together, our time-series and cross-sectional evidence strengthens the assertion that the well-known accrual effect is significantly associated with high-BE/ME value firms that tend to be low-investment firms. The fact that time-varying risk adds to the description of average returns of accrual-sorted portfolios and corroborates the presence of the accrual premium contributes significantly to the literature. Keywords: Total accruals; Size; Book-to-market; Mispricing; Abnormal returns; Cross-section of stock returns (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:48:y:2016:i:c:p:150-161 DOI: 10.1016/j.irfa.2016.09.014 Access Statistics for this article International Review of Financial Analysis is currently edited by B.M. Lucey More articles in International Review of Financial Analysis from Elsevier |
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