Earnings-Based and Accrual-Based Market Anomalies: One Effect or Two?

45 Pages Posted: 21 Jul 1999  

Daniel W. Collins

University of Iowa - Department of Accounting

Paul Hribar

University of Iowa - Henry B. Tippie College of Business

Date Written: May 25, 1999

Abstract

This paper investigates whether the accrual pricing anomaly documented by Sloan (1996) for annual data holds for quarterly data and whether this form of market mispricing is distinct from the post-earnings announcement drift anomaly. We find that the market appears to overestimate (underestimate) the persistence of the accrual (cash flow) component of quarterly earnings and, therefore, tends to overprice (underprice) accruals (cash flows). Moreover, the accrual (cash flow) mispricing appears to be distinct from post-earnings announcement drift. A hedge portfolio trading strategy that exploits both forms of market mispricing generates abnormal returns in excess of those based on unexpected earnings, accruals, or cash flow information alone.

JEL Classification: G14, M41

Suggested Citation

Collins, Daniel W. and Hribar, Paul, Earnings-Based and Accrual-Based Market Anomalies: One Effect or Two? (May 25, 1999). Available at SSRN: https://ssrn.com/abstract=166455 or http://dx.doi.org/10.2139/ssrn.166455

Daniel W. Collins (Contact Author)

University of Iowa - Department of Accounting ( email )

108 Pappajohn Business Building
Iowa City, IA 52242-1000
United States
319-335-0912 (Phone)
319-335-1956 (Fax)

Paul Hribar

University of Iowa - Henry B. Tippie College of Business ( email )

Dept. of Accounting
Iowa City, IA 52242-1000
United States
319-335-1008 (Phone)

Paper statistics

Downloads
2,489
Rank
3,610
Abstract Views
7,216