Does Return Dispersion Explain the Accrual and Investment Anomalies?

Journal of Accounting and Economics, Forthcoming

41 Pages Posted: 3 Sep 2012 Last revised: 9 Aug 2014

See all articles by Doina Chichernea

Doina Chichernea

University of Denver - Reiman School of Finance

Anthony Dewayne Holder

University of Denver

Alex Petkevich

The University of Toledo - Department of Finance

Date Written: August 8, 2014

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.

Keywords: Accruals; Investments; Return dispersion

JEL Classification: G11, G12

Suggested Citation

Chichernea, Doina and Holder, Anthony Dewayne and Petkevich, Alex, Does Return Dispersion Explain the Accrual and Investment Anomalies? (August 8, 2014). Journal of Accounting and Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2140152 or http://dx.doi.org/10.2139/ssrn.2140152

Doina Chichernea

University of Denver - Reiman School of Finance ( email )

2101 S. University Blvd
Denver, CO 80208
United States

Anthony Dewayne Holder (Contact Author)

University of Denver ( email )

2101 S. University Blvd. Suite 375
Denver, CO 80208
United States
3038712028 (Phone)

Alex Petkevich

The University of Toledo - Department of Finance ( email )

2801 W. BANCROFT ST.
Mail Stop 103
Toledo, OH Ohio 43606
United States

HOME PAGE: http://homepages.utoledo.edu/apetkev

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