The return premiums to accruals quality

Sati P. Bandyopadhyay (), Alan Guoming Huang (), Kevin Jialin Sun () and Tony S. Wirjanto ()
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Sati P. Bandyopadhyay: University of Waterloo
Alan Guoming Huang: University of Waterloo
Kevin Jialin Sun: St. John’s University
Tony S. Wirjanto: University of Waterloo

Review of Quantitative Finance and Accounting, 2017, vol. 48, issue 1, No 4, 83-115

Abstract: Abstract Using a battery of look-ahead-bias free measures of accruals quality (AQ), we find a strong and long-lasting negative relation between future returns and AQ. In decile portfolios that rank on AQ, a hedge portfolio that goes long in the lowest decile and short in the highest decile generates an annualized, risk-adjusted return of 4–12 % over 1-month to 5-year horizons, depending on the AQ measure and the portfolio weighting scheme. The return premiums associated with AQ are, (1) robust to a wide range of AQ measures, (2) robust to a battery of return-informative variables, and (3) not driven by low-priced or small stocks, earnings shocks, or the fourth-quarter effect. The documented premiums are consistent with the information uncertainty effect where firm uncertainty is negatively related to future returns .

Keywords: Accruals quality; Stock returns; Return premium; Information uncertainty (search for similar items in EconPapers)
JEL-codes: G12 G14 M41 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s11156-015-0543-z

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