The Accrual Anomaly in Australia: A Closer Look at Trading Strategy Returns

38 Pages Posted: 7 Jul 2010

See all articles by Stephen L. Taylor

Stephen L. Taylor

University of Technology Sydney; Financial Research Network (FIRN)

Leon Wong

UNSW Australia Business School, School of Accounting

Date Written: June 22, 2010

Abstract

We conduct a detailed examination of the accrual anomaly in Australia using a trading strategy research design. Our primary contribution is to show how sensitive the results are to the precise research design specifications. We focus on four key areas of importance in designing such tests. First, the choice of proxy for total accruals; second, the definition of abnormal returns (i.e., the return generating model); third, the impact of data trimming as a response to exceptionally large returns; and fourth, the choice between value or equal weighting of returns. We show that research design choices do matter, and in doing so we also provide some reconciliation of apparently conflicting prior evidence of any accrual anomaly in Australia. Our results suggest the need for caution in drawing inferences from specific research design specifications in trading strategy tests of the accrual anomaly.

Keywords: Accruals, market anomalies, trading strategy

JEL Classification: M41, G14

Suggested Citation

Taylor, Stephen L. and Wong, Leon, The Accrual Anomaly in Australia: A Closer Look at Trading Strategy Returns (June 22, 2010). Available at SSRN: https://ssrn.com/abstract=1635610 or http://dx.doi.org/10.2139/ssrn.1635610

Stephen L. Taylor (Contact Author)

University of Technology Sydney ( email )

UTS Business School
PO Box 123 Broadway
Sydney, NSW 2007
Australia
61295143437 (Phone)
61295143513 (Fax)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Leon Wong

UNSW Australia Business School, School of Accounting ( email )

Sydney, NSW 2052
Australia
612 9385 5810 (Phone)
612 9385 5925 (Fax)

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
184
Abstract Views
2,122
Rank
296,243
PlumX Metrics