Market Timing with Aggregate Accruals*

We propose market timing strategies aiming to exploit the aggregate accruals’ return forecasting power. We examine several performance metrics of the aggregate accruals based market timing strategy such as excess portfolio return, Sharpe ratio, and Jensen’s alpha. We provide robust evidence that, relative to the passive investment strategy of buying and holding the stock market, the market timing strategy delivers superior performance that is both statistically and economically significant. Specifically, the market timing strategy on average beats the S&P500 Index by 6 to 22 percentage points (annualized) after controlling for transaction costs over the 1980-2004 period.