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Accruals and Aggregate Stock Market Returns

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Author Info
Hirshleifer, David
Hou, Kewei
Teoh, Siew Hong

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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.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 5197.

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Date of creation: 23 Sep 2007
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Handle: RePEc:pra:mprapa:5197

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Keywords: accruals return predictability stock market returns market efficiency asset pricing anomalies accounting earnings fixation

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Find related papers by JEL classification:
M41 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - Accounting
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  1. Jiao, T. & Mertens, G.M.H. & Roosenboom, P.G.J., 2007. "Industry Valuation Driven Earnings Management," Research Paper ERS-2007-069-F&A Revision, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni. [Downloadable!]
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