ICAPM and the Accruals Anomaly

Quarterly Journal of Finance (forthcoming)

57 Pages Posted: 4 Feb 2015 Last revised: 2 Sep 2020

See all articles by Hui Guo

Hui Guo

University of Cincinnati - Department of Finance - Real Estate

Paulo F. Maio

Hanken School of Economics - Department of Finance and Statistics

Date Written: September 1, 2020

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 risk 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.

Keywords: Accruals anomaly; Asset pricing; Term spread; Value spread; Intertemporal CAPM

JEL Classification: G11, G12, M41

Suggested Citation

Guo, Hui and Maio, Paulo F., ICAPM and the Accruals Anomaly (September 1, 2020). Quarterly Journal of Finance (forthcoming), Available at SSRN: https://ssrn.com/abstract=2559458 or http://dx.doi.org/10.2139/ssrn.2559458

Hui Guo

University of Cincinnati - Department of Finance - Real Estate ( email )

College of Business
418 Carl H. Lindner Hall
Cincinnati, OH 45221
United States
513.556.7077 (Phone)
513.556.0979 (Fax)

HOME PAGE: http://homepages.uc.edu/~guohu/

Paulo F. Maio (Contact Author)

Hanken School of Economics - Department of Finance and Statistics ( email )

FI-00101 Helsinki
Finland

HOME PAGE: http://sites.google.com/site/paulofmaio/home

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