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Do Mutual Funds Profit from the Accruals Anomaly?

Authors


  • We gratefully acknowledge the comments of Abbie Smith, Richard Sloan, an anonymous reviewer, and seminar participants at the University of Georgia, University of Texas at Dallas, the 2005 Financial Management Association Meetings, the 2006 American Accounting Association Meetings, and the 2007 American Finance Association Meetings. We grateful acknowledge the comments of Abbie Smith, Richard Sloan, an anonymous reviewer, and seminar participants at the University of Georgia, University of Texas at Dallas, the 2005 Financial Management Association Meetings, the 2006 American Accounting Association Meetings, and the 2007 American Finance Association Meetings.

ABSTRACT

Using data on both fund stockholdings and fund returns, we examine whether actively managed equity mutual funds trade on and profit from the accruals anomaly. We find that few, if any, mutual funds trade on the anomaly. The top 10% of mutual funds that have the highest portfolio weights in low-accruals stocks have a greater, but still relatively small, exposure to low-accruals stocks. Nonetheless, these funds make significant profit net of actual transaction costs, exhibiting an average Fama-French three-factor alpha of 2.83% per year. We also find that these funds are smaller, less diversified, and exhibit higher fund return volatility and higher fund flow volatility.

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