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Author Lev, Baruch ♦ Nissim, Doron
Source CiteSeerX
Content type Text
File Format PDF
Subject Domain (in DDC) Computer science, information & general works ♦ Data processing & computer science
Abstract The authors gratefully acknowledge the helpful comments and suggestions made by Stephen Penman, Gordon Richardson (the editor), Jan Svejnar, two anonymous referees, and seminar participants at Columbia University, the “Share Price Accuracy and Transition Economies” Conference at Michigan University, and the University of Houston. The authors also acknowledge the research assistance of Shai Levi, and thank Brian Bushee for providing the institutional classification data. The Persistence of the Accruals Anomaly The accruals anomaly—the negative relationship between accounting accruals and subsequent stock returns—has been well documented in the academic and practitioner literatures for almost a decade. To the extent that this anomaly represents market inefficiency, one would expect sophisticated investors to learn about it and arbitrage the anomaly away. Yet, we show that the accruals anomaly still persists and even more strikingly—its magnitude has not declined over time. How can this be explained? We show that the accruals anomaly is recognized and indeed exploited by certain active institutional investors, but the magnitude of this accrualsrelated trading is rather small. By and large, institutions shy away from extreme accruals firms because their attributes, such as small size, low profitability and high risk stand in stark contrast to those preferred by most institutions. Individual investors, too, are by and large unable to profit from trading on accruals information due to the high information and transaction costs associated with implementing a consistently profitable accruals strategy. Consequently, the accruals anomaly persists, and will probably endure. The Persistence of the Accruals Anomaly 1.
Educational Role Student ♦ Teacher
Age Range above 22 year
Educational Use Research
Education Level UG and PG ♦ Career/Technical Study
Publisher Date 2005-01-01