Corpus ID: 31344307

Paper The Accrual Anomaly : Exploring the Optimal Investment Hypothesis

  title={Paper The Accrual Anomaly : Exploring the Optimal Investment Hypothesis},
  author={Jin Wu and Frank Xiaoling Zhang},
Interpreting accruals as working capital investment, we hypothesize that firms rationally adjust their investment to respond to discount rate changes. Consistent with the optimal investment hypothesis, we document that (i) the predictive power of accruals for future stock returns increases with the covariations of accruals with past and current stock returns, and (ii) adding investmentbased factors into standard factor regressions substantially reduces the magnitude of the accrual anomaly. High… Expand

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