Do Mutual Funds Profit from the Accruals Anomaly?
41 Pages Posted: 21 Mar 2006 Last revised: 3 Feb 2008
Date Written: June 1, 2007
Using data on both fund stockholdings and fund returns, we show that actively-managed equity mutual funds are able to make significant excess returns net of actual transaction costs from trading on the accruals anomaly. We find that the top 10% of mutual funds that most actively follow the accruals strategy have Fama-French 3-factor alphas of 2.83% per year. We also find that mutual funds more active in using the accruals strategy exhibit higher return volatility and higher flow volatility. These factors may represent the adverse consequences of arbitrage risk that funds face when they trade on the accruals anomaly (Shleifer & Vishny 1997).
Keywords: accruals anomaly, mutual fund, arbitrage risk
JEL Classification: G12,G20
Suggested Citation: Suggested Citation