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Short Arbitrage, Return Asymmetry, and the Accrual Anomaly

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  • David Hirshleifer
  • Siew Hong Teoh
  • Jeff Jiewei Yu

Abstract

We find a positive association between short selling and accruals during 1988--2009, and that asymmetry between the up- and downsides of the accrual anomaly is stronger when constraints on short arbitrage are more severe (low availability of loanable shares as proxied by institutional holdings). Short arbitrage occurs primarily among firms in the top accrual decile. Asymmetry is present only on NASDAQ. Thus, there is short arbitrage of the accrual anomaly, but short-sale constraints limit its effectiveness. The Author 2011. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oup.com., Oxford University Press.

Suggested Citation

  • David Hirshleifer & Siew Hong Teoh & Jeff Jiewei Yu, 2011. "Short Arbitrage, Return Asymmetry, and the Accrual Anomaly," Review of Financial Studies, Society for Financial Studies, vol. 24(7), pages 2429-2461.
  • Handle: RePEc:oup:rfinst:v:24:y:2011:i:7:p:2429-2461
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    Cited by:

    1. Ball, Ray & Gerakos, Joseph & Linnainmaa, Juhani T. & Nikolaev, Valeri, 2016. "Accruals, cash flows, and operating profitability in the cross section of stock returns," Journal of Financial Economics, Elsevier, vol. 121(1), pages 28-45.
    2. repec:wsi:qjfxxx:v:07:y:2017:i:01:n:s2010139216500178 is not listed on IDEAS
    3. Eunju Lee, 2016. "Short selling and market mispricing," Review of Quantitative Finance and Accounting, Springer, vol. 47(3), pages 797-833, October.
    4. Beneish, M.D. & Lee, C.M.C. & Nichols, D.C., 2015. "In short supply: Short-sellers and stock returns," Journal of Accounting and Economics, Elsevier, vol. 60(2), pages 33-57.
    5. Akbas, Ferhat & Meschke, Felix & Wintoki, M. Babajide, 2016. "Director networks and informed traders," Journal of Accounting and Economics, Elsevier, vol. 62(1), pages 1-23.
    6. Kim, Young Jun & Kim, Jung Hoon & Kwon, Sewon & Lee, Su Jeong, 2015. "Percent accruals and the accrual anomaly: Korean evidence," Pacific-Basin Finance Journal, Elsevier, vol. 35(PA), pages 340-366.
    7. Peng, Emma Y. & Yan, An & Yan, Meng, 2016. "Accounting accruals, heterogeneous investor beliefs, and stock returns," Journal of Financial Stability, Elsevier, vol. 24(C), pages 88-103.
    8. repec:eee:pacfin:v:46:y:2017:i:pb:p:227-242 is not listed on IDEAS
    9. Cristhian Mellado & Surendranath R. Jory & Thanh N. Ngo, 2016. "Do Option Traders Target Firms With Poor Earnings Quality," 2016 Papers pme563, Job Market Papers.
    10. Jacobs, Heiko, 2015. "What explains the dynamics of 100 anomalies?," Journal of Banking & Finance, Elsevier, vol. 57(C), pages 65-85.
    11. Yubin Li & Chen Zhao & Zhaodong Zhong, 2016. "Migrate or not? The effects of regulation SHO on options trading activities," Review of Derivatives Research, Springer, vol. 19(2), pages 113-146, July.
    12. David Hirshleifer & Kewei Hou & Siew Hong Teoh, 2012. "The Accrual Anomaly: Risk or Mispricing?," Management Science, INFORMS, vol. 58(2), pages 320-335, February.
    13. Jiao, Yawen & Massa, Massimo & Zhang, Hong, 2016. "Short selling meets hedge fund 13F: An anatomy of informed demand," Journal of Financial Economics, Elsevier, vol. 122(3), pages 544-567.
    14. José Renato Haas Ornelas & Pablo José Campos de Carvalho, 2015. "The Cost of Shorting, Asymmetric Performance Reaction and the Price Response to Economic Shocks," Working Papers Series 383, Central Bank of Brazil, Research Department.
    15. Strydom, Maria & Skully, Michael & Veeraraghavan, Madhu, 2014. "Is the accrual anomaly robust to firm-level analysis?," International Review of Financial Analysis, Elsevier, vol. 34(C), pages 157-165.
    16. Massa, Massimo & Qian, Wenlan & Xu, Weibiao & Zhang, Hong, 2015. "Competition of the informed: Does the presence of short sellers affect insider selling?," Journal of Financial Economics, Elsevier, vol. 118(2), pages 268-288.
    17. David Hirshleife, 2015. "Behavioral Finance," Annual Review of Financial Economics, Annual Reviews, vol. 7(1), pages 133-159, December.
    18. Jiao, Yawen & Massa, Massimo & Zhang, Hong, 2015. "Short Selling Meets Hedge Fund 13F: An Anatomy of Informed Demand," CEPR Discussion Papers 10471, C.E.P.R. Discussion Papers.
    19. Wang, Shu-Feng & Lee, Kuan-Hui, 2015. "Do foreign short-sellers predict stock returns? Evidence from daily short-selling in Korean stock market," Pacific-Basin Finance Journal, Elsevier, vol. 32(C), pages 56-75.
    20. Paul A. Griffin & Hyun A. Hong & Jeong-Bon Kim, 2016. "Price discovery in the CDS market: the informational role of equity short interest," Review of Accounting Studies, Springer, vol. 21(4), pages 1116-1148, December.
    21. repec:eee:finana:v:52:y:2017:i:c:p:160-171 is not listed on IDEAS
    22. Balbás, Alejandro & Balbás, Beatriz & Balbás, Raquel, 2013. "On the inefficiency of Brownian motions and heavier tailed price processes," INDEM - Working Paper Business Economic Series id-13-01, Instituto para el Desarrollo Empresarial (INDEM).
    23. Callen, Jeffrey L. & Fang, Xiaohua, 2015. "Short interest and stock price crash risk," Journal of Banking & Finance, Elsevier, vol. 60(C), pages 181-194.
    24. repec:eee:corfin:v:45:y:2017:i:c:p:586-607 is not listed on IDEAS

    More about this item

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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