Do Accounting Information and Market Environment Matter for Cross-Asset Predictability?

Accounting and Finance, Forthcoming

50 Pages Posted: 25 Feb 2021

See all articles by Narongdech Thakerngkiat

Narongdech Thakerngkiat

Massey University

Harvey Nguyen

Massey University, Massey Business School; Monash University

Nhut H. Nguyen

Auckland University of Technology

Nuttawat Visaltanachoti

Massey University - Department of Economics and Finance

Date Written: February 25, 2021

Abstract

This paper examines whether the differences in accounting information between stocks affect cross-asset return predictability. We use a comprehensive set of accounting variables and find that abnormal accruals, earnings smoothness, book-to-market, firm age, leverage, abnormal capital investment, and investment growth, among others, explain the variation in return predictability across pairing stocks. Moreover, our results show that cross-asset predictability varies over time and is associated with funding liquidity and market sentiment. A simple trading strategy based on our findings yields a higher mean return, lower standard deviation, and higher Sharpe ratio compared to the buy-and-hold strategy.

Keywords: Limits to Arbitrage, Information Diffusion, Cross-Asset Predictability

JEL Classification: G11, G14, M41

Suggested Citation

Thakerngkiat, Narongdech and Nguyen, Harvey and Nguyen, Nhut H. and Visaltanachoti, Nuttawat, Do Accounting Information and Market Environment Matter for Cross-Asset Predictability? (February 25, 2021). Accounting and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3792800 or http://dx.doi.org/10.2139/ssrn.3792800

Narongdech Thakerngkiat (Contact Author)

Massey University ( email )

Private Bag 102904
North Shore Mail Centre
Auckland, 0745
New Zealand
021922954 (Phone)

Harvey Nguyen

Massey University, Massey Business School ( email )

Private Bag 11 222
Auckland, North Shore, Albany 0632
New Zealand

Monash University ( email )

23 Innovation Walk
Wellington Road
Clayton, Victoria 3800
Australia

Nhut H. Nguyen

Auckland University of Technology ( email )

55 Wellesley St East
Auckland, Auckland 1010
New Zealand
+64 9 921 9999 (Phone)

Nuttawat Visaltanachoti

Massey University - Department of Economics and Finance ( email )

School of Economics and Finance
Private Bag 102904, NSMC
Auckland
New Zealand
64 9 414 0800 (43169) (Phone)
64 9 441 8177 (Fax)

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