20 Pages Posted: 13 Jul 2010
Date Written: 2009-09
The value premium earned on value and growth investment strategies increases after adjusting for transitory earnings and for the accounting conservatism bias in the book value of equity. Simple investment strategies based on earnings-to-price (E/P) and book-to-market (B/M) performed on the Swedish stock market between 1980 and 2004 generate an annual value premium of 11 to 14%. Adjustments for transitory earnings and for the conservatism bias increase the value premium by 2 to 4 percentage points, and at the same time they improve the consistency of earning it. These results suggest that transitory earnings and accounting conservatism introduce noise into E/P and B/M measures. Adjusting for these accounting characteristics makes the identification based on E/P and B/M more effective.
Suggested Citation: Suggested Citation
Hamberg, Mattias and Novak, Jiri, Accounting Conservatism and Transitory Earnings in Value and Growth Strategies (2009-09). Journal of Business Finance & Accounting, Vol. 37, Issue 5-6, pp. 518-537, June/July 2010. Available at SSRN: https://ssrn.com/abstract=1639215 or http://dx.doi.org/10.1111/j.1468-5957.2010.02186.x
This is a Wiley-Blackwell Publishing paper. Wiley-Blackwell Publishing charges $38.00 .
File name: jbfa.
If you wish to purchase the right to make copies of this paper for distribution to others, please select the quantity.