Do Mutual Funds Profit from the Accruals Anomaly?

41 Pages Posted: 21 Mar 2006 Last revised: 3 Feb 2008

Ashiq Ali

University of Texas at Dallas - Naveen Jindal School of Management

Xuanjuan Chen

Shanghai University of Finance and Economics

Tong Yao

University of Iowa - Henry B. Tippie College of Business

Tong Yu

University of Cincinnati

Date Written: June 1, 2007

Abstract

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

Ali, Ashiq and Chen, Xuanjuan and Yao, Tong and Yu, Tong, Do Mutual Funds Profit from the Accruals Anomaly? (June 1, 2007). AFA 2007 Chicago Meetings; Journal of Accounting Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=891662 or http://dx.doi.org/10.2139/ssrn.891662

Ashiq Ali (Contact Author)

University of Texas at Dallas - Naveen Jindal School of Management ( email )

800 West Campbell Road, SM41
Richardson, TX 75080-3021
United States
972-883-6360 (Phone)
972-883-6811 (Fax)

HOME PAGE: http://www.utdallas.edu/~axa042200/

Xuanjuan Chen

Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, Shanghai 200433
China

Tong Yao

University of Iowa - Henry B. Tippie College of Business ( email )

Acquisitions
5020 Main Library
Iowa City, IA 52242-1000
United States

Tong Yu

University of Cincinnati ( email )

P.O. Box 210195
Cincinnati, OH 45221-0195
United States
4019548606 (Phone)
4019548606 (Fax)

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