Explaining Accrual Anomaly Using Multi-factor Pricing Model in Tehran Stock Exchange

Document Type : Research Paper

Authors

1 Ph.D. Candidate, Department of Accounting, Faculty of Administrative and Economic, University of Isfahan, Isfahan, Iran

2 Associate Prof., Department of Accounting, Faculty of Administrative and Economic, University of Isfahan, Isfahan, Iran

3 Assistant Prof., Department of Economic, Faculty of Administrative and Economic, University of Isfahan, Isfahan, Iran

Abstract

Objective: The main objective of this research is to explain the accrual anomaly using accruals factor (CMA) and accrual-based factor-mimicking portfolios as well as checking whether accrual anomaly is risk-based or mispricing. According to rational frictionless asset pricing model, the ability of accruals to predict returns should come from the loadings on this accrual factor loading that predicts returns.
Methods: In this research, to test the hypotheses of time series regression and also, the four-factor pricing model is used to analyze accrual anomaly.
Results:Our tests showed that it is the accrual characteristic rather than the accrual factor loading that predicts returns. These results indicated that investors evaluate the accrual characteristic in an incorrect manner and cause doubts on the rational risk explanation
Conclusion: We can conclude that there is a relationship between accruals and returns, and this comovement is attributed to mispricing of investors. In other words, accrual anomaly results from mispricing.

Keywords

Main Subjects

References

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Financial Research Journal
Volume 20, Issue 3
2018
Pages 305-326

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