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The Accrual Anomaly

Last Updated on 10 February, 2024 by Rejaul Karim

The enigmatic realm of the accrual anomaly takes center stage in the practitioner-focused review presented in “The Accrual Anomaly” by Patricia Dechow, Natalya V. Khimich, and Richard G. Sloan. Delving into Sloan’s seminal work and its subsequent research, the paper serves as a comprehensive exploration of the accrual anomaly, catering to practitioners seeking an in-depth understanding of this intriguing phenomenon.

Commencing with illustrative examples to elucidate accrual computation and interpretation, the paper navigates through Sloan’s foundational insights and corroborating research, accentuating the anomaly’s pervasive presence.

Furthermore, the review encapsulates alternative explanations for the accrual anomaly, offering a multifaceted perspective. Ultimately, the paper concludes with a succinct discourse on the practical implications of this research, culminating in a comprehensive and thought-provoking analysis of the accrual anomaly’s impact on earnings and stock prices.

Abstract Of Paper

This paper provides a practitioner-oriented review of the accrual anomaly in Sloan (1996) and related subsequent research. We begin with two simple examples that illustrate the computation and interpretation of accruals. We next review Sloan’s (1996) original paper and related subsequent research corroborating Sloan’s interpretation of the accrual anomaly. We next summarize research providing alternative explanations for the accrual anomaly. We finish with a brief discussion of the practical implications of this research.

Original paper – Download PDF

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Author

Patricia Dechow
USC Marshall School of Business

Natalya V. Khimich
Drexel University

Richard G. Sloan
University of Southern California – Leventhal School of Accounting

Conclusion

“The Accrual Anomaly” by Patricia Dechow, Natalya V. Khimich, and Richard G. Sloan culminates with a comprehensive summary that underscores the significance of the accrual anomaly and its implications within the realm of earnings and stock prices.

The practitioner-oriented review provides practitioners and researchers alike with a nuanced understanding of the accrual anomaly, beginning with illustrative examples of accrual computation and interpretation, subsequently delving into corroborating research supporting Sloan’s seminal work.

The culmination of alternative explanations for the accrual anomaly enhances the complexity of this phenomenon, offering practitioners a multifaceted perspective.

Moreover, the paper’s brief reflection on the practical implications of this research serves as a thought-provoking conclusion, accentuating the nuanced and far-reaching ramifications of the accrual anomaly within the financial landscape.

Related Reading:

Asymmetrically Timely Loss Recognition and the Accrual Anomaly

ICAPM and the Accruals Anomaly

FAQ

What is the main focus of the paper “The Accrual Anomaly” by Patricia Dechow, Natalya V. Khimich, and Richard G. Sloan?

The main focus of the paper is to provide a practitioner-oriented review of the accrual anomaly, particularly delving into Richard G. Sloan’s seminal work from 1996 and subsequent research related to the accrual anomaly. The paper aims to offer a comprehensive exploration of the accrual anomaly for practitioners seeking an in-depth understanding of this intriguing phenomenon.

What does the paper cover in terms of illustrative examples and computation of accruals?

The paper begins with two simple examples that illustrate the computation and interpretation of accruals. This serves as a foundational step to elucidate how accruals are calculated and how they should be interpreted. The illustrative examples likely aim to make the complex concept of accruals more accessible for practitioners.

What is Sloan’s interpretation of the accrual anomaly, and how does the paper corroborate it?

Sloan’s interpretation of the accrual anomaly is likely based on his foundational work in 1996, which the paper reviews. The accrual anomaly, in this context, refers to the negative relationship between accounting accruals and subsequent stock returns. The paper reviews Sloan’s original work and subsequent research that supports and corroborates his interpretation of the accrual anomaly.

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