A Simple Model that Helps Explaining the Accruals Anomaly

53 Pages Posted: 4 Feb 2015 Last revised: 11 May 2018

See all articles by Hui Guo

Hui Guo

University of Cincinnati - Department of Finance - Real Estate

Paulo F. Maio

Hanken School of Economics - Department of Finance and Statistics

Date Written: December 27, 2017

Abstract

We propose a new multifactor model to price the cross-section of average excess returns associated with accruals portfolios, and hence explain the accruals anomaly. Our model represents an application of the Intertemporal CAPM from Merton (1973), where the key factors are the innovations on the term spread and value spread. The model clearly outperforms the simple CAPM, and shows large explanatory power for the cross-sectional risk premia associated with three different groups of accrual portfolios. Moreover, the model compares favorably with alternative multifactor models widely used in the literature. Our results remain robust by using equal-weighted accruals portfolios.

Keywords: Accruals anomaly; Asset pricing; Cross-section of stock returns; Term spread; Value spread; Intertemporal CAPM; Linear multifactor models; Predictability of stock returns; Fama-French factors; Investment and profitability factors

JEL Classification: G11, G12, M41

Suggested Citation

Guo, Hui and Maio, Paulo F., A Simple Model that Helps Explaining the Accruals Anomaly (December 27, 2017). Available at SSRN: https://ssrn.com/abstract=2559458 or http://dx.doi.org/10.2139/ssrn.2559458

Hui Guo

University of Cincinnati - Department of Finance - Real Estate ( email )

College of Business
418 Carl H. Lindner Hall
Cincinnati, OH 45221
United States
513.556.7077 (Phone)
513.556.0979 (Fax)

HOME PAGE: http://homepages.uc.edu/~guohu/

Paulo F. Maio (Contact Author)

Hanken School of Economics - Department of Finance and Statistics ( email )

FI-00101 Helsinki
Finland

HOME PAGE: http://sites.google.com/site/paulofmaio/home

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