Accrual Anomaly and Idiosyncratic Risk PDF Download

Author: Steven Fan
Publisher:
ISBN:
Category :
Languages : en
Pages : 14

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Book Description
In this study, we show that accrual abnormal returns are positively correlated to idiosyncratic risk in international equity markets. In addition, we find that idiosyncratic risk has less impact on accrual abnormal returns for developed countries than emerging countries. Our results are robust to different model selections, such as portfolio approach and regression analysis, across countries. Our results support the mispricing explanation of accrual anomaly around the world.

Author: Christina A. Mashruwala
Publisher:
ISBN:
Category :
Languages : en
Pages :

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Book Description
We show that the accrual anomaly documented by Sloan (1996) is concentrated in firms with high idiosyncratic stock return volatility making it risky for risk-averse arbitrageurs to take positions in stocks with extreme accruals. Moreover, the accrual anomaly is found in low price and low volume stocks, suggesting that transaction costs impose further barriers to exploiting accrual mispricing.

Author: Ming Gu
Publisher:
ISBN:
Category : Earnings management
Languages : en
Pages : 105

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Book Description
This dissertation studies two pervasive financial anomalies: price momentum and accrual anomaly. The first essay establishes a robust link between momentum and accruals (the difference between accounting earnings and cash flow). I find that momentum profitability is statistically significant and economically large only among firms with high accruals. The cross-sectional characteristics of momentum previously documented do not subsume the effect of accruals on momentum profits, and the effect also holds in different market states. To understand the source of momentum, I analyze the predictive power of accruals for stock returns based on two hypotheses: earnings manipulation and earnings overestimation. I find that loser stocks with high accruals experience significant decreases in industry-adjusted sales growth and the largest amount of income-decreasing special items in subsequent years. Most of momentum profitability among high-accrual firms is attributable to the high discretionary accrual group. My findings indicate that, primarily due to the effect of earnings manipulation, the downward payoff of loser stocks with high accruals largely drives the accrual-based momentum profit. The second essay investigates the relationship between financial distress and accrual anomaly. I investigate whether the continued existence of the accrual anomaly is due to the failure to account for the compensation for distress risk. I find a U-shape pattern of distress risks across accrual portfolios. The accrual profit is mostly concentrated in firms with high distress, suggesting that the abnormal returns to the accrual trading strategy may result from the high distress-risk exposures. Market frictions such as idiosyncratic stock return volatility, illiquidity, and short-sale constraints do not generate the accrual anomaly, but they prevent stock prices from adjusting once financial distress triggers the abnormal returns to the accrual trading strategy.

Author: James A. Ohlson
Publisher:
ISBN:
Category :
Languages : en
Pages :

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Research suggesting the existence of the accrual anomaly runs into the issue that risk serves as a competing explanation for abnormal returns. This paper proposes a novel approach to distinguish between risk and anomaly explanations for the negative association between accruals and returns. The intuition is that high risk stocks should experience relatively high and low returns more often than low risk stocks. Thus, a variable that has the opposite correlations with high returns than with low returns is unlikely to capture risk, which points toward an anomaly. The paper implements this perspective via two logistic regressions predicting relatively high and low returns. Controlling for standard risk measures, we document that low accruals increase the probability of large positive returns, but reduce the likelihood of large negative returns. This finding is inconsistent with the prediction that accruals reflect risk and supports the hypothesis that the accrual “anomaly” is indeed an anomaly.

Author: Steven Fan
Publisher:
ISBN:
Category :
Languages : en
Pages : 43

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Book Description
In this study, we examine how idiosyncratic risk is correlated with a wide array of anomalies, including asset growth, book-to-market, investment-to-assets, momentum, net stock issues, size, and total accruals, in international equity markets. We use zero-cost trading strategy and multifactor models to show that these anomalies produce significant abnormal returns. The abnormal returns vary dramatically among different countries and between developed and emerging countries. We provide strong evidence to support the limits of arbitrage theory across countries by documenting a positive correlation between idiosyncratic risk and abnormal return. It suggests that the existence of these well-known anomalies is due to idiosyncratic risk. In addition, we find that idiosyncratic risk has less impact on abnormal return in developed countries than emerging countries. Our results support the mispricing explanation of the existence of various anomalies across global markets.

Author: Leonard Zacks
Publisher: John Wiley & Sons
ISBN: 1118127765
Category : Business & Economics
Languages : en
Pages : 352

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Book Description
Investment pioneer Len Zacks presents the latest academic research on how to beat the market using equity anomalies The Handbook of Equity Market Anomalies organizes and summarizes research carried out by hundreds of finance and accounting professors over the last twenty years to identify and measure equity market inefficiencies and provides self-directed individual investors with a framework for incorporating the results of this research into their own investment processes. Edited by Len Zacks, CEO of Zacks Investment Research, and written by leading professors who have performed groundbreaking research on specific anomalies, this book succinctly summarizes the most important anomalies that savvy investors have used for decades to beat the market. Some of the anomalies addressed include the accrual anomaly, net stock anomalies, fundamental anomalies, estimate revisions, changes in and levels of broker recommendations, earnings-per-share surprises, insider trading, price momentum and technical analysis, value and size anomalies, and several seasonal anomalies. This reliable resource also provides insights on how to best use the various anomalies in both market neutral and in long investor portfolios. A treasure trove of investment research and wisdom, the book will save you literally thousands of hours by distilling the essence of twenty years of academic research into eleven clear chapters and providing the framework and conviction to develop market-beating strategies. Strips the academic jargon from the research and highlights the actual returns generated by the anomalies, and documented in the academic literature Provides a theoretical framework within which to understand the concepts of risk adjusted returns and market inefficiencies Anomalies are selected by Len Zacks, a pioneer in the field of investing As the founder of Zacks Investment Research, Len Zacks pioneered the concept of the earnings-per-share surprise in 1982 and developed the Zacks Rank, one of the first anomaly-based stock selection tools. Today, his firm manages U.S. equities for individual and institutional investors and provides investment software and investment data to all types of investors. Now, with his new book, he shows you what it takes to build a quant process to outperform an index based on academically documented market inefficiencies and anomalies.

Author: Marselinus Asri
Publisher:
ISBN:
Category :
Languages : en
Pages : 21

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Book Description
The purpose of research is to investigate the accrual principles in Accounting that contained in the Company's Financial Statements. The accrual principle is reflected in the Balance Sheet and Income Statement. Accrual measurements in the Balance Sheet are measured using PersistenceCurrent Operating Accrual, Persistence Non-Current Operating Accrual. Idiosyncratic risk reflects the specific information about the company and it will fluctuate according to the information itself. To measure the idiosyncratic risk in this study five factors of Fama-French Model were used (Fama and French 2014). Asset Pricing Measurement uses the Dividend Discount Model to predict stock prices.The samples used in this study are listed below. The Manufacturing Company is selected with consideration for accrual measurement of accounts receivable, inventory, investment, and liabilities. The sample was chosen by purposive random sampling method. The number of samples generated by this method is 145 companies with full reports for 2010-2015.Using the SEM AMOS Ver.24 and Sobel Test-Path Analysis, the results show that Current Operating Accrual has a negative and significant relationship to the idiosyncratic risk and stock price. For non-current Operating Accrual, variables have a positive and significant relation. By using Sobel Test, the test result shows that idiosyncratic risk has mediation effect in Persistence Current Operating Accrual, Non-Current Operating Accrual relationship to stock price.

Author:
Publisher:
ISBN:
Category :
Languages : en
Pages :

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Book Description

Author: Marselinus Asri
Publisher:
ISBN:
Category :
Languages : en
Pages : 20

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Book Description
The purpose of research is to investigate the accrual principles in Accounting that contained in the Company's Financial Statements. The accrual principle is reflected in the Balance Sheet and Income Statement. Accrual measurements in the Balance Sheet are measured using PersistenceCurrent Operating Accrual, Persistence NonCurrent Operating Accrual. Idiosyncratic risk reflects the specific information about the company and it will fluctuate according to the information itself.To measure the idiosyncratic risk in this study five factors of Fama-French Model were used (Fama and French 2014). Asset Pricing Measurement uses the Dividend Disscounted Model to predict stock prices.The samples used in this study are listed below. The Manufacturing Company is selected with consideration for accrual measurement of accounts receivable, inventory, investment and liabilities. The sample was chosen by purposive random sampling method. The number of samples generated by this method is 145 companies with full reports for 2010-2015.Using the SEM AMOS Ver.24 and Sobel Test Path Analysis, the results show that Current Operating Accrual has a negative and significant relationship to the idiosyncratic risk and stock price. For non-Current Operating Accrual variables have positive and significant relation. By using Sobel Test, the test result shows that idiosyncratic risk has mediation effect in Persistence Current Operating Accrual, NonCurrent Operating Accrual relationship to stock price.

Author: Li, Xi
Publisher:
ISBN:
Category :
Languages : en
Pages : 34

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Book Description
Using idiosyncratic volatility as a proxy for arbitrage costs, the authors found that the highly publicized accrual and asset growth anomalies exist because of high barriers to arbitrage, occurring predominantly in the universe of stocks with higher arbitrage risks. Therefore, investors who seek to profit from the accrual and asset growth anomalies must bear greater uncertainty in outcomes than was previously understood.