Explaining Of the Accrual Anomaly and Investment Anomaly by Return Dispersion

Document Type : Research Paper

Authors

Abstract

  Introduction
The accrual anomaly is one of the most long-standing asset-pricing anomalies. The accrual and investment anomalies express negative relationship between accruals and investment with future stock returns, respectively. These two anomalies will be related because both contain growth information. On the other hand, return dispersion, which is proxy for economic condition, linked with growth-related risk. Therefore, return dispersion can explain accruals and investment anomalies. Hence, low-accruals and low-investment firms have higher exposure to return dispersion risk and, thus, generate higher expected returns as a compensation for this risk.
 
Research Hypotheses
The purpose of this research is investigation of accruals and investment anomalies by return dispersion in firms listed in Tehran stock exchange.
Hypothesis 1: Return dispersion carries a positive risk premium in the cross section of the firm stock returns.
Hypothesis 2: Relative return dispersion carries a positive risk premium in the cross section of the firm stock returns.
Hypothesis 3: Relative return dispersion carries a positive risk premium in the cross section of the accrual portfolios.
Hypothesis 4: Relative return dispersion carries a positive risk premium in the cross section of the investment portfolios.
Hypothesis 5: Relative return dispersion carries a positive risk premium in the cross section of the accrual and investment portfolios.
Hypothesis 6: Relative return dispersion carries a positive risk premium in the accrual hedge portfolios.
Hypothesis 7: Relative return dispersion carries a positive risk premium in the investment hedge portfolios.
 
Methods
For test research hypotheses was used two-step cross-sectional and time series regressions. For this intent based on monthly data, a sample of 125 firms listed in Tehran Stock Exchange during the period of 2007-20016 is used.
 
Results
The results of research indicate with controlling for Fama and French three-factor, return dispersion has positive and significant risk premium in the cross section of the firm stock returns, and accrual and investment portfolios. Therefore, first to fifth research hypotheses is confirmed. Also, relative return dispersion carries a positive and significant risk premium in the accrual hedge portfolios. Therefore sixth research hypotheses is confirmed. And, relative return dispersion carries a negative and unsignificant risk premium in the investment hedge portfolios. Therefore seventh research hypotheses isn't confirmed.
 
Discustion and Conclusion
Return dispersion, in addition to the Fama and French three-factor has positive risk premium. Also, return dispersion can explain accruals anomaly and generate higher future returns for low-accrual firms as a compensation for return dispersion risk. Therefore, accruals anomaly is because of rational risk pricing. Also, return dispersion cannot explain investment anomaly.
Keywords: Market Anomalies, Accruals Anomaly, Investment Anomaly, Return Dispersion, Cross Sectional Models.

Keywords

Main Subjects

References

 
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History

  • Receive Date: 05 April 2017
  • Revise Date: 16 July 2017
  • Accept Date: 29 July 2017

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