#38 – Accrual Anomaly
#127 – Accrual Anomaly ver.2
Mohanram: Analysts’ Cash Flow Forecasts and the Decline of the Accruals Anomaly
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2386210
Abstract:
The accruals anomaly, demonstrated by Sloan (1996), generated significant excess returns consistently for over four decades until 2002, but has apparently weakened in the subsequent period. In this paper, I argue that one factor responsible for this decline is the increasing incidence of analysts’ cash flow forecasts that provides markets with forecasts of future accruals. The negative relationship between accruals and future returns is significantly weaker in the presence of cash flow forecasts. This anomalous relationship becomes weaker with the initiation cash flow forecasts but continues after cash flow forecasts are terminated. Further, the mitigating effect of cash flow forecasts is greater for forecasts that are more accurate. The results are incremental to explanations based on the improved accrual quality, reduced manipulation of special items and restructuring charges and greater investment in accruals strategies by hedge funds and highlight the increasing importance of analysts’ cash flow forecasts in the appropriate valuation of stocks.
#54 – Momentum and State of Market (Sentiment) Filters
Avramov, Cheng, Hameed: Time-Varying Momentum Payoffs and Illiquidity
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2289745
Abstract:
This paper shows that the state of market illiquidity explains time variation in momentum payoffs, consistent with behavioral models of investor overconfidence. The predictive power of aggregate market illiquidity uniformly exceeds that of alternative proxies such as the market return and market volatility states. During highly illiquid periods, low investor overconfidence together with widening illiquidity gap between loser and winner stocks triggers low, often massively negative, momentum payoffs. While the momentum strategies are unconditionally not profitable in US, Japan, and Eurozone countries in the recent decade, they gain significance following periods of low market illiquidity.
#98 – Tax Expense Momentum
Henry: The Information Content of Tax Expense: A Firm†and Marketâ€Level Return Decomposition
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2401150
Abstract:
I investigate how the market values information contained in tax expense. Prior research documents a positive association between a firm’s tax expense “surprise” and contemporaneous returns (Hanlon, Laplante and Shevlin, 2005 and Thomas and Zhang, 2013). Following Vuolteenaho (2002), I decompose a firm’s returns into cash flow and discount rate news components to determine whether the positive association between tax expense surprises and returns is due to a discount rate explanation, as opposed to a cash flow explanation. I then extend this analysis to the market level to determine whether any discount rate news contained in a firm’s tax expense surprise is idiosyncratic or systematic in nature. My results suggest that the positive information content of tax expense is because it changes investors’ expectations of firm risk for the full sample of firms. Market level tests suggest that the priced risk associated with tax expense surprises is firm-specific in nature.
