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ICAPM and the Accruals Anomaly

Author

Listed:
  • Hui Guo

    (Carl H. Lindner College of Business, University of Cincinnati, 2360 Carl H. Lindner Hall, PO Box 210195 Cincinnati, Ohio 45221-0195, USA)

  • Paulo Maio

    (Department of Finance and Economics, Hanken School of Economics, Arkadiankatu 22, 00101 Helsinki, Finland)

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.

Suggested Citation

  • Hui Guo & Paulo Maio, 2020. "ICAPM and the Accruals Anomaly," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 10(03), pages 1-48, September.
    • Handle: RePEc:wsi:qjfxxx:v:10:y:2020:i:03:n:s2010139220500147
    DOI: 10.1142/S2010139220500147
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    Cited by:

    1. Maio, Paulo & Xu, Danielle, 2020. "Cash-flow or return predictability at long horizons? The case of earnings yield," Journal of Empirical Finance, Elsevier, vol. 59(C), pages 172-192.

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