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The Accrual Anomaly and the Announcement Effect of Short Arbitrage

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  • Michael Sullivan

    (University of Nevada, Las Vegas, Department of Finance, Lee Business School, Las Vegas, NV 89154-6008, (702) 895-4669, USA)

  • Andrew Jianzhong Zhang

    (University of Nevada, Las Vegas, Department of Finance, Lee Business School, Las Vegas, NV 89154-6008, (702)895-2527, USA)

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.

Suggested Citation

  • Michael Sullivan & Andrew Jianzhong Zhang, 2017. "The Accrual Anomaly and the Announcement Effect of Short Arbitrage," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 7(01), pages 1-26, March.
  • Handle: RePEc:wsi:qjfxxx:v:07:y:2017:i:01:n:s2010139216500178
    DOI: 10.1142/S2010139216500178
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    References listed on IDEAS

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