The Accrual Anomaly and the Announcement Effect of Short Arbitrage

Document Type

Article

Publication Date

1-1-2017

Publication Title

Quarterly Journal of Finance

Volume

7

Issue

1

Abstract

We investigate the accrual anomaly by examining the stock market reaction around the release of short interest information for firms with high accruals. We show that arbitrage activity, proxied by short interest, focuses on mispricing of firms with high accruals. In particular, we provide evidence that high accrual firms experience significant negative returns when high short interest levels are announced. In contrast, the announcement effect does not vary by short selling activity for low accrual firms. Our findings are consistent with the view that the accrual anomaly is due to overpricing. © 2017 World Scientific Publishing Company.

Language

english

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