Are Accruals Mispriced? Evidence from Tests of an Intertemporal Capital Asset Pricing Model

Khan, Mozaffar

doi:10.2139/ssrn.590888

Are Accruals Mispriced? Evidence from Tests of an Intertemporal Capital Asset Pricing Model

AAA 2005 Financial Accounting and Reporting Section (FARS) Meeting

46 Pages Posted: 15 Sep 2004

See all articles by Mozaffar Khan

Mozaffar Khan

Causeway Capital Management, LLC

Date Written: June 2007

Abstract

This paper proposes a risk-based explanation for the accrual anomaly. Risk is measured using a four-factor model motivated by the Intertemporal Capital Asset Pricing Model. Tests of the model suggest that a considerable portion of the cross-sectional variation in average returns to high and low accrual firms is explained by risk. The four-factor model also performs better than some other widely used models in pricing a number of different hedge portfolios.

Keywords: Accruals, mispricing, market efficiency, risk, anomaly.

JEL Classification: G12, G14, M41, M43

Suggested Citation: Suggested Citation

Khan, Mozaffar, Are Accruals Mispriced? Evidence from Tests of an Intertemporal Capital Asset Pricing Model (June 2007). AAA 2005 Financial Accounting and Reporting Section (FARS) Meeting, Available at SSRN: https://ssrn.com/abstract=590888 or http://dx.doi.org/10.2139/ssrn.590888