ICAPM and the Accruals Anomaly

Research output: Contribution to journalArticleScientificpeer-review

Abstract

We propose new multifactor models to explain the accruals anomaly. Our baseline model represents an application of Merton’s ICAPM in which the key factors represent (innovations on) the term and small-value spreads. The model shows large explanatory power for cross-sectional risking premia associated with three accruals portfolio groups. A scaled version of the model shows better performance, suggesting that accruals risk premia are related with the business cycle. Both models compare favorably with popular multifactor models used in the literature, and also perform well in pricing other important anomalies. The risk price estimates of the hedging factors are consistent with the ICAPM framework.
Original languageEnglish
Peer-reviewed scientific journalQuarterly Journal of Finance
Volume10
Issue number3
Pages (from-to)2050014
ISSN2010-1392
DOIs
Publication statusPublished - 04.09.2020
MoE publication typeA1 Journal article - refereed

Keywords

  • 512 Business and Management
  • accruals anomaly
  • asset pricing
  • term spread
  • value spread
  • intertemporal CAPM

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