Accrual Anomaly in the Brazilian Capital Market
This paper analyzes the phenomenon known as accrual anomaly in Brazil. In particular, we examine two hypotheses: (a) that the earnings expectation included in the stock price fails to reflect the difference in persistence of the earnings components (accruals and cash flows); and (b) that the con...
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Associação Nacional de Pós-Graduação e Pesquisa em Administração (ANPAD)
2012-10-01
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Series: | BAR: Brazilian Administration Review |
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Online Access: | http://www.anpad.org.br/periodicos/arq_pdf/a_1350.pdf |
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doaj-2291e79c4a394781afeeb6815fa5e4a92020-11-24T21:12:46ZengAssociação Nacional de Pós-Graduação e Pesquisa em Administração (ANPAD)BAR: Brazilian Administration Review1807-76922012-10-0194421440Accrual Anomaly in the Brazilian Capital Market César Medeiros CupertinoAntonio Lopo MartinezNewton Carneiro Affonso da Costa Jr.This paper analyzes the phenomenon known as accrual anomaly in Brazil. In particular, we examine two hypotheses: (a) that the earnings expectation included in the stock price fails to reflect the difference in persistence of the earnings components (accruals and cash flows); and (b) that the construction of a hedge portfolio by taking a long (short) position in assets with low (high) accruals generates consistently abnormal returns. The data set includes nonfinancial firms listed on the BM&FBOVESPA between 1990 and 2008. The empirical tests required conducting panel data regressions to identify the persistence of earnings and theircomponents; the Mishkin test to identify whether the market rationally prices earnings; and the composition of a zero-investment (hedge) portfolio to analyze whether a trading strategy based on accruals consistently provides abnormal positive returns. The results indicate that the accrual component is not mispriced by the Brazilian market, and that a trading strategy based on accruals does not provide consistently positive returns. Although this evidence does not encourage arbitrage, the results are relevant from various perspectives. The methodology applied permitted identifying the quality of earnings and of their components, as well as association between the components of earnings and returns.http://www.anpad.org.br/periodicos/arq_pdf/a_1350.pdfaccrual anomalyearnings qualitypersistence of accruals. |
collection |
DOAJ |
language |
English |
format |
Article |
sources |
DOAJ |
author |
César Medeiros Cupertino Antonio Lopo Martinez Newton Carneiro Affonso da Costa Jr. |
spellingShingle |
César Medeiros Cupertino Antonio Lopo Martinez Newton Carneiro Affonso da Costa Jr. Accrual Anomaly in the Brazilian Capital Market BAR: Brazilian Administration Review accrual anomaly earnings quality persistence of accruals. |
author_facet |
César Medeiros Cupertino Antonio Lopo Martinez Newton Carneiro Affonso da Costa Jr. |
author_sort |
César Medeiros Cupertino |
title |
Accrual Anomaly in the Brazilian Capital Market |
title_short |
Accrual Anomaly in the Brazilian Capital Market |
title_full |
Accrual Anomaly in the Brazilian Capital Market |
title_fullStr |
Accrual Anomaly in the Brazilian Capital Market |
title_full_unstemmed |
Accrual Anomaly in the Brazilian Capital Market |
title_sort |
accrual anomaly in the brazilian capital market |
publisher |
Associação Nacional de Pós-Graduação e Pesquisa em Administração (ANPAD) |
series |
BAR: Brazilian Administration Review |
issn |
1807-7692 |
publishDate |
2012-10-01 |
description |
This paper analyzes the phenomenon known as accrual anomaly in Brazil. In particular, we examine two hypotheses: (a) that the earnings expectation included in the stock price fails to reflect the difference in persistence of the earnings components (accruals and cash flows); and (b) that the construction of a hedge portfolio by taking a long (short) position in assets with low (high) accruals generates consistently abnormal returns. The data set includes nonfinancial firms listed on the BM&FBOVESPA between 1990 and 2008. The empirical tests required conducting panel data regressions to identify the persistence of earnings and theircomponents; the Mishkin test to identify whether the market rationally prices earnings; and the composition of a zero-investment (hedge) portfolio to analyze whether a trading strategy based on accruals consistently provides abnormal positive returns. The results indicate that the accrual component is not mispriced by the Brazilian market, and that a trading strategy based on accruals does not provide consistently positive returns. Although this evidence does not encourage arbitrage, the results are relevant from various perspectives. The methodology applied permitted identifying the quality of earnings and of their components, as well as association between the components of earnings and returns. |
topic |
accrual anomaly earnings quality persistence of accruals. |
url |
http://www.anpad.org.br/periodicos/arq_pdf/a_1350.pdf |
work_keys_str_mv |
AT cesarmedeiroscupertino accrualanomalyinthebraziliancapitalmarket AT antoniolopomartinez accrualanomalyinthebraziliancapitalmarket AT newtoncarneiroaffonsodacostajr accrualanomalyinthebraziliancapitalmarket |
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