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Does return dispersion explain the accrual and investment anomalies?

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  • Chichernea, Doina C.
  • Holder, Anthony D.
  • Petkevich, Alex

Abstract

Recent research shows that high return dispersion (RD) is associated with economic conditions characterized by high discount rates, which are not conducive to growth and investment. We propose that RD risk can explain the accrual and investment anomalies. We conduct asset-pricing tests that include RD as a potential risk factor and show that low-accrual and low-investment firms have significantly higher exposure to the risk captured by RD. RD significantly explains future returns and the excess returns to accrual and investment hedge portfolios shrink in magnitude and become insignificant during periods of low RD. We conclude that risk explains the accrual and investment anomalies.

Suggested Citation

  • Chichernea, Doina C. & Holder, Anthony D. & Petkevich, Alex, 2015. "Does return dispersion explain the accrual and investment anomalies?," Journal of Accounting and Economics, Elsevier, vol. 60(1), pages 133-148.
  • Handle: RePEc:eee:jaecon:v:60:y:2015:i:1:p:133-148
    DOI: 10.1016/j.jacceco.2014.08.001
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    1. repec:eee:finana:v:56:y:2018:i:c:p:264-280 is not listed on IDEAS

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    Keywords

    Accruals; Investments; Return dispersion;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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