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The Accrual Anomaly: Risk or Mispricing?

Kewei Hou, David Hirshleifer and Siew Hong Teoh

MPRA Paper from University Library of Munich, Germany

Abstract: We document considerable return comovement associated with accruals after controlling for other common factors. An accrual-based factor-mimicking portfolio has a Sharpe ratio of 0.16, higher than that of the market factor or the SMB and HML factors of Fama and French (1993). In time series regressions, a model that includes the Fama-French factors and the additional accrual factor captures the accrual anomaly in average returns. However, further time series and cross-sectional tests indicate that it is the accrual characteristic rather than the accrual factor loading that predicts returns. These findings favor a behavioral explanation for the accrual anomaly.

Keywords: Capital markets; accruals; market efficiency; behavioral finance; limited attention (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 M41 (search for similar items in EconPapers)
Date: 2007-04-01
New Economics Papers: this item is included in nep-acc and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: The Accrual Anomaly: Risk or Mispricing? (2012) Downloads
Working Paper: The Accrual Anomaly: Risk or Mispricing? (2006) Downloads
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