Accruals and Aggregate Stock Market Returns
Journal of Financial Economics, Forthcoming
53 Pages Posted: 21 Nov 2005 Last revised: 19 Oct 2008
Date Written: September 1, 2007
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: Suggested Citation