Accruals and Aggregate Stock Market Returns

Hirshleifer, David and Hou, Kewei and Teoh, Siew Hong (2007): Accruals and Aggregate Stock Market Returns.

Abstract

Past research has shown that the level of operating accruals is a negative cross-sectional predictor of stock returns. This paper examines whether the accrual anomaly extends to the aggregate stock market. In contrast with cross-sectional findings, there is no indication that aggregate operating accruals is a negative time series predictor of stock market returns; the relation is strongly positive for the market portfolio and also for several sector and industry portfolios. In addition, innovations in accruals are negatively contemporaneously associated with market returns, suggesting that changes in accruals contain information about changes in discount rates, or that firms manage earnings in response to market-wide undervaluation.

• Item Type: MPRA Paper
• Institution: Merage School of Business, UC Irvine
• Language: English
• Keywords: accruals; return predictability; stock market returns; market efficiency; asset pricing; anomalies; accounting; earnings fixation
• Subjects: M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M4 - Accounting and Auditing > M41 - Accounting; G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing ; Trading Volume ; Bond Interest Rates; G - Financial Economics > G1 - General Financial Markets > G14 - Information and Market Efficiency ; Event Studies ; Insider Trading

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