Accruals and Aggregate Stock Market Returns

Journal of Financial Economics, Forthcoming

53 Pages Posted: 21 Nov 2005 Last revised: 19 Oct 2008

See all articles by David A. Hirshleifer

David A. Hirshleifer

University of California, Irvine - Paul Merage School of Business; NBER

Kewei Hou

Ohio State University (OSU) - Department of Finance

Siew Hong Teoh

University of California, Irvine - Accounting Area

Date Written: September 1, 2007

Abstract

Past research has shown that the level of operating accruals is a negative cross-sectional predictor of stock returns. This paper examines whether the accrual anomaly extends to the aggregate stock market. In contrast with cross-sectional findings, there is no indication that aggregate operating accruals is a negative time series predictor of stock market returns; the relation is strongly positive for the market portfolio and also for several sector and industry portfolios. In addition, innovations in accruals are negatively contemporaneously associated with market returns, suggesting that changes in accruals contain information about changes in discount rates, or that firms manage earnings in response to market-wide undervaluation.

JEL Classification: G12, G14, M41, M43

Suggested Citation

Hirshleifer, David A. and Hou, Kewei and Teoh, Siew Hong, Accruals and Aggregate Stock Market Returns (September 1, 2007). Journal of Financial Economics, Forthcoming . Available at SSRN: https://ssrn.com/abstract=849446 or http://dx.doi.org/10.2139/ssrn.849446

David A. Hirshleifer

University of California, Irvine - Paul Merage School of Business ( email )

Irvine, CA California 92697-3125
United States

HOME PAGE: http://sites.uci.edu/dhirshle/

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Kewei Hou (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States
614-292-0552 (Phone)
614-292-2418 (Fax)

Siew Hong Teoh

University of California, Irvine - Accounting Area ( email )

Irvine, CA 92697-3125
United States

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