The Study Of Further Subdivision Of Accrual Anomaly

Since the efficient capital market hypothesis (EMH) was put forward, it has been in the fundamental position of the capital market research, while the EMH is regarded as the research hypotheses by many studies. However, some scholars have found a number of systematic empirical evidence which do not comply with the efficient capital market hypothesis predicts after1980s, it proved that the capital market is not as efficient as the EMH predicted. Accrual anomaly is one of the important hypotheses which challenged the basis status of the EMH in the capital markets research.The pioneering research of Sloan (1996) verified the existence of accrual anomaly in the capital markets, the accrual anomaly illustrates that in the accounting earnings, the persistence of accounting accruals is more than cash flows, but the market fails to appreciate fully the lower persistence of the accrual component of earnings and, consequently, overprices accounting accruals, investors could seize this deviation and build an investment strategy-a long position in firms reporting lower levels of accruals relative to cash flows and a short position in firms reporting higher levels of accrual relative to cash flows, then investor could gain positive abnormal stock returns. The accrual anomaly represents market ineffectiveness, which is the market fails to reflect fully information contained in the accrual and cash flow components of accounting earnings, thus the wise investors could acquire positive abnormal stock returns utilizing the market ineffectiveness, which shakes the foundation status of efficient capital market hypothesis.Based on Sloan (1996) and other scholars’ research on accrual anomaly and combined with the data of listed companies in China, this thesis study the cause of accrual anomaly through further subdividing accruals. On the assumption that accrual anomaly already exists in China’s stock market, the paper considers that different persistence in the components of accruals cause accrual anomaly, then divided accruals into operating and non-operating accruals, studying whether the persistence of operating accruals is less than the alternative and market pricing. Furtherly, the paper discusses the persistence and market pricing of operating accruals" components, discretionary accruals and non-discretionary accruals, the results reveal that the extent of the market mispricing is not significant. At last, the paper builds a hedge investment strategy-buying lower persistent accruals and selling higher persistent accruals simultaneously, verifying whether this strategy could yield positive abnormal stock returns. Meanwhile, the paper also analyzes whether the potential behavior of negative earnings company or ST company have an impacts on the Chinese stock market and its magnitude.