Abstract
AbstractWe view accruals as a natural candidate to link to momentum in the context of the overreaction explanation. Accruals can proxy for ambiguity about the implications of new information for a firm's value and can vary with the business cycle. Thus, higher accruals can lead to greater behavioral biases in the cross‐sectional and time‐series dimensions and, hence, stronger momentum. Our results show that momentum profitability is mostly concentrated in firms with high accruals. The previously documented cross‐sectional characteristics of momentum and market states do not subsume the effect of accruals on momentum. We also find that most of the momentum returns among high‐accrual firms are attributable to high discretionary accruals.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
