Accrual anomaly in the Brazilian capital market

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César Medeiros Cupertino
Antônio Lopo Martinez
Newton Carneiro Affonso da Costa Jr.


This paper analyzes the phenomenon known as accrual anomaly in Brazil. In particular, we examine two hypotheses: (a) that the earnings expectation included in the stock price fails to reflect the difference in persistence of the earnings components (accruals and cash flows); and (b) that the construction of a hedge portfolio by taking a long (short) position in assets with low (high) accruals generates consistently abnormal returns. The data set includes nonfinancial firms listed on the BM&FBOVESPA between 1990 and 2008. The empirical tests required conducting panel data regressions to identify the persistence of earnings and their components; the Mishkin test to identify whether the market rationally prices earnings; and the composition of a zero-investment (hedge) portfolio to analyze whether a trading strategy based on accruals consistently provides abnormal positive returns. The results indicate that the accrual component is not mispriced by the Brazilian market, and that a trading strategy based on accruals does not provide consistently positive returns. Although this evidence does not encourage arbitrage, the results are relevant from various perspectives. The methodology applied permitted identifying the quality of earnings and of their components, as well as association between the components of earnings and returns.


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Cupertino, C. M., Martinez, A. L., & Costa Jr., N. C. A. da. (2012). Accrual anomaly in the Brazilian capital market. Brazilian Administration Review, 9(4), 421-440.