Charles A. Dice Center for Research in Financial Economics

Aggregate Accruals and Stock Market Returns

David Hirshleifer, Kewei Hou, and Siew Hong Teoh

ABSTRACT

Past research has shown that the level of operating accruals is a negative cross-sectional predictor of future stock returns. This paper examines whether the accruals anomaly extends to the aggregate stock market. In contrast with cross-sectional findings, there is no indication that aggregate operating accruals is a negative predictor of stock market returns; the relation is strongly positive for both equal- and value-weighted market portfolios. Contemporaneously, innovations in accruals are negatively associated with market returns, suggesting that accruals and discount rates comove, and reinforcing the finding of Kothari et al (2005) that discount rate shocks help explain aggregate stock returns.

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