The Accruals Anomaly - Can Implementable Portfolio Strategies be Developed that are Profitable Net of Transactions Costs in the UK? PDF Download
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Author: Nuno Soares
Publisher:
ISBN:
Category :
Languages : en
Pages : 56
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Book Description
In this paper, we provide evidence related to the existence, or otherwise, of the accruals anomaly in the UK stock market. Specifically, we find that average annual abnormal returns generally decline as prior period accruals move from low to high. This outcome can be interpreted as broadly consistent with the accruals anomaly via which investors overweight the persistence of accruals and underweight the persistence of cash flows in predicting next period's earnings. Our results suggest that to make money out of any mispricing based upon ranking firms by accruals generally requires a portfolio strategy with long and, in particular, short positions in portfolios featuring relatively small capitalisation firms. When taking into account conservative estimates of trading costs, the investment strategy is seen to generate losses if an initially equally-weighted investment approach is used or positive, but not statistically significant, abnormal returns if a value-weighted approach is followed.Overall, we conclude that, whilst there is evidence of mispricing consistent with the accruals anomaly, the profitable exploitation of the anomaly is not necessarily possible when transactions costs are taken into account. Thus, the accruals anomaly is not so egregious in the UK as to challenge the semi-strong version efficient markets hypothesis.
Author: Nuno Soares
Publisher:
ISBN:
Category :
Languages : en
Pages : 56
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Book Description
In this paper, we provide evidence related to the existence, or otherwise, of the accruals anomaly in the UK stock market. Specifically, we find that average annual abnormal returns generally decline as prior period accruals move from low to high. This outcome can be interpreted as broadly consistent with the accruals anomaly via which investors overweight the persistence of accruals and underweight the persistence of cash flows in predicting next period's earnings. Our results suggest that to make money out of any mispricing based upon ranking firms by accruals generally requires a portfolio strategy with long and, in particular, short positions in portfolios featuring relatively small capitalisation firms. When taking into account conservative estimates of trading costs, the investment strategy is seen to generate losses if an initially equally-weighted investment approach is used or positive, but not statistically significant, abnormal returns if a value-weighted approach is followed.Overall, we conclude that, whilst there is evidence of mispricing consistent with the accruals anomaly, the profitable exploitation of the anomaly is not necessarily possible when transactions costs are taken into account. Thus, the accruals anomaly is not so egregious in the UK as to challenge the semi-strong version efficient markets hypothesis.
Author: Malek El Diri
Publisher: Springer
ISBN: 3319626868
Category : Business & Economics
Languages : en
Pages : 120
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Book Description
This book provides researchers and scholars with a comprehensive and up-to-date analysis of earnings management theory and literature. While it raises new questions for future research, the book can be also helpful to other parties who rely on financial reporting in making decisions like regulators, policy makers, shareholders, investors, and gatekeepers e.g., auditors and analysts. The book summarizes the existing literature and provides insight into new areas of research such as the differences between earnings management, fraud, earnings quality, impression management, and expectation management; the trade-off between earnings management activities; the special measures of earnings management; and the classification of earnings management motives based on a comprehensive theoretical framework.
Author: Amir Amel-Zadeh
Publisher: Routledge
ISBN: 1000066525
Category : Business & Economics
Languages : en
Pages : 331
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Book Description
Spending on M&A has, in aggregate, grown so fast that it has even overtaken capital expenditure on increasing and maintaining physical assets. Yet McKinsey, the leading management consultancy, reports that "Anyone who has researched merger success rates knows that roughly 70% fail". The idea that businesses might be using huge and increasing sums of shareholders’ money for an activity that more often than not leads to failure calls into question the information on which M&A decisions are based. This book presents statistical studies, case material, and standard-setters’ opinions on company accounting before, during, and after M&A. It documents the manipulation of annual accounts by acquirers ahead of share for share bids, biased forecasts of post-merger earnings by bidders, and devices to flatter earnings when recording the deal. It explores the challenges for standard-setters in regulating information flows during and after M&A, and for account-users wishing to learn from financial statements how a deal has affected performance. Drawing on a wide range of international examples, this readable book is targeted not just at accounting specialists but at anyone who is comfortable reading the serious financial press, is intrigued by what is going on in the massive M&A market, and is concerned with achieving better-informed M&A. As such it might be of particular interest to business executives, lawyers, bankers, and investors involved in M&A as well as graduate students interested in researching or learning about the role of accounting in M&A.
Author: Andrea Frazzini
Publisher:
ISBN:
Category :
Languages : en
Pages : 68
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Book Description
Using nearly a trillion dollars of live trading data from a large institutional money manager across 19 developed equity markets over the period 1998 to 2011, we measure the real-world transactions costs and price impact function facing an arbitrageur and apply them to size, value, momentum, and short-term reversal strategies. We find that actual trading costs are less than a tenth as large as, and therefore the potential scale of these strategies is more than an order of magnitude larger than, previous studies suggest. Furthermore, strategies designed to reduce transactions costs can increase net returns and capacity substantially, without incurring significant style drift. Results vary across styles, with value and momentum being more scalable than size, and short-term reversals being the most constrained by trading costs. We conclude that the main anomalies to standard asset pricing models are robust, implementable, and sizeable.
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: Robert Novy-Marx
Publisher:
ISBN:
Category : Externalities (Economics)
Languages : en
Pages : 59
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Book Description
This paper studies the performance of a large number of anomalies after accounting for transaction costs, and the effectiveness of several transaction cost mitigation strategies. It finds that introducing a buy/hold spread, which allows investors to continue to hold stocks that they would not actively trade into, is the single most effective simple cost mitigation strategy. Most of the anomalies that we consider with one-sided monthly turnover lower than 50% continue to generate statistically significant net spreads, at least when designed to mitigate transaction costs. Few of the strategies with higher turnover do. In all cases transaction costs reduce the strategies' profitability and its associated statistical significance, increasing concerns related to data snooping.
Author: Jin Ginger Wu
Publisher:
ISBN:
Category : Corporations
Languages : en
Pages : 52
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Book Description
Interpreting accruals as working capital investment, we hypothesize that firms rationally adjust their investment to respond to discount rate changes. Consistent with the optimal investment hypothesis, we document that (i) the predictive power of accruals for future stock returns increases with the covariations of accruals with past and current stock returns, and (ii) adding investment-based factors into standard factor regressions substantially reduces the magnitude of the accrual anomaly. High accrual firms also have similar corporate governance and entrenchment indexes as low accrual firms. This evidence suggests that the accrual anomaly is more likely to be driven by optimal investment than by investor overreaction to excessive growth or over-investment.
Author: Paul Hoefsloot
Publisher: LAP Lambert Academic Publishing
ISBN: 9783848440184
Category :
Languages : en
Pages : 64
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Book Description
This paper investigates the existence of the accrual anomaly on the Dutch stock market. It documents that there is statistical evidence to accept that the cash flow component of current earnings is significantly more persistent than the accrual component of current earnings with respect to future earnings. Applying a trading strategy this paper shows that a significant abnormal return can de made by constructing a portfolio consisting of firms with relatively low accruals. However, contrary to U.S. findings, a hedge return consisting of a long position in low accruals firms and a short position in high accruals firms (hedge portfolio) generates neither substantial nor statistically significant returns.
Author: Antoon Pelsser
Publisher:
ISBN:
Category :
Languages : en
Pages : 20
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Book Description
Author: Harry Zheng
Publisher:
ISBN: 9781899872701
Category : Investments
Languages : en
Pages : 0
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Book Description
