Research On The Existence Of Accrual Anomaly Of Chinese Capital Market

The accruals, included in the earnings is mispriced in the capital market, there is a negative relationship between accounting accruals and subsequent stock returns. Investors may take advantage of this relation, buy the stocks of low accruals and sell the stock of high accruals so as to acquire abnormal returns. The description above is known as accrual anomaly.Accrual anomaly is first addressed by Sloan in his research on the American capital market. It has been well documented in the academic and practitioner literatures for almost a decade. This paper focus on the Chinese capital market, follows the methods of Sloan, divided the earnings of two parts:accounting accruals and the cash flow. We show that the persistence of cash flow is higher than accruals. Then implements the trading strategy taking a long position in the stock of firms reporting relatively low levels of accruals and a short position in the stock of firms reporting relatively high levels of accrual. By and large, this trading strategy didn't generates positive abnormal stock returns. For the robustness consideration, we eliminate the enterprises running under deficit, follows the same trading strategy, then the abnormal stock return increases significantly.