Revisiting the (mis)pricing of the accrual anomaly

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

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Author(s)

Detail(s)

Original languageEnglish
Pages (from-to)210-224
Journal / PublicationJournal of Risk Finance
Volume19
Issue number3
Online published21 May 2018
Publication statusPublished - 2018
Externally publishedYes

Abstract

Purpose - This paper aims to hunt for the driving force behind the accrual anomaly and revisit the risk versus mispricing debate.
Design/methodology/approach - In sorts of stock returns on abnormal and normal accruals, the authors find that abnormal accruals are the driving force behind the accrual anomaly. The authors then construct characteristic-balanced portfolios from dependent sorts of stock returns on the abnormal accrual characteristic and a related factor-mimicking portfolio to test whether the accrual anomaly is due to risk or mispricing (Daniel and Titman, 1997; Davis et al., 2000). 
Findings - Similar to Hirshleifer et al. (2012), the authors find that the accrual anomaly is due to mispricing and that the measure of accruals used in Hirshleifer et al.’s study (2012) is a very broad measure of accruals. The authors therefore recommend the use of abnormal accruals in future research. 
Originality/value - The results suggest that there are limits to arbitrage or behavioral biases with regard to the trading of low-accrual firms. Showing that the accrual effect is driven by the level of abnormal accruals, the findings of this study strongly challenge the rational risk explanation proposed by the extant literature.

Research Area(s)

  • Abnormal accruals, Accrual anomaly, Mispricing, Risk

Citation Format(s)

Revisiting the (mis)pricing of the accrual anomaly. / Canitz, Felix; Fieberg, Christian; Lopatta, Kerstin et al.

In: Journal of Risk Finance, Vol. 19, No. 3, 2018, p. 210-224.

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review