We exploit a unique setting of accounting regulation change to examine how accounting information quality affects the well-documented accrual anomaly. We show a significant reduction in the negative return predictability of accruals among UK companies with poorer accounting information quality following the introduction of Financial Reporting Standard No. 3: Reporting Financial Performance (FRS...

In a world were trading is costless, assets with identical cash flows must have identical prices. If arbitrageurs face unit time costs, or holding costs, the prices of these assets need not be equal, i.e the assets can be relatively mispriced. This paper constructs a dynamic model of the equilibrium determination of prices under costly arbitrage. Our analysis reveals that: (i) Mispricing and ar...

In this paper we investigate whether stock market overpricing leads to aggregate (real) inefficiencies. We first investigate a standard dynamic contracting model of investment subject to financing constraints. We show that stock market mispricing will have two robust effects on welfare: on the one hand it will distort investment decisions and lead to inefficiencies. On the other hand it will al...

W document considerable return comovement associated with accruals after controlling for other common factors. An accrual-based factor-mimicking portfolio has a Sharpe ratio of 0.16, higher than that of the market factor or the SMB and HML factors of Fama and French. According to rational frictionless asset pricing models, the ability of accruals to predict returns should come from the loadings...

We show that carry, momentum and value predictability in currencies is associated with mispricing. Specifically, investment performance disappears subsequent to published evidence showing portfolio returns are not fully explained by risk. Replicating these studies, we the average out-of-sample Sharpe ratio decreases from +0.39 −0.32. Cross sectional tests no longer respond interest rate real ex...

This paper examines the impact of innovation on future profitability and stock returns. We first replicate confirm findings Hirshleifer et al. (2018) in U.S. setting. Consistent with we find that is associated with: (1) higher more persistent suggesting innovative firms are able to maintain a competitive advantage (2) positive returns mispricing current share prices. When extend these analyses ...

volume indicates. Index options give market participants the ability to participate in anticipated market movements without having to buy or sell a large number of securities, and they permit portfolio managers to limit downside risk. Given their prominence and functions, the pricing efficiency of these markets is of great importance to academics, practitioners , and regulators. Well-functionin...