Revisiting the (mis)pricing of the accrual anomaly

Felix Canitz (Carl von Ossietzky Universitat Oldenburg, Oldenburg, Germany)
Christian Fieberg (SOLVECON INVEST GMBH, Bremen, Germany and Department of Finance, University of Bremen, Bremen, Germany)
Kerstin Lopatta (Carl von Ossietzky Universitat Oldenburg, Oldenburg, Germany)
Thorsten Poddig (Department of Finance, University of Bremen, Bremen, Germany)
Thomas Walker (Concordia University, Sharjah, United Arab Emirates)

Journal of Risk Finance

ISSN: 1526-5943

Publication date: 21 May 2018

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.

Keywords

Citation

Felix Canitz, Christian Fieberg, Kerstin Lopatta, Thorsten Poddig and Thomas Walker (2018) "Revisiting the (mis)pricing of the accrual anomaly", Journal of Risk Finance, Vol. 19 No. 3, pp. 210-224

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DOI

: https://doi.org/10.1108/JRF-12-2016-0154

Publisher

:

Emerald Publishing Limited

Copyright © 2018, Emerald Publishing Limited

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