The Accruals Based Trading Strategy on the Swedish Stock Market: Does the benchmark when classifying extreme accrual firms have an impact on the trading strategy’s effectiveness?
Abstract: Purpose: To investigate if it is possible to earn abnormal returns from the accruals based trading strategy in Sweden. The aim is also to examine if the benchmark used when classifying firms into accruals portfolios has an impact on the abnormal returns from the trading strategy. Methodology: The study investigates the abnormal returns from the trading strategy that aims to exploit the accruals anomaly. Firms are divided into portfolios and using previously established methods of risk-adjustment, the abnormal returns from the trading strategy are estimated and tested for each of the 11 portfolio years. Theoretical perspectives: The theory in the paper is based on previous research on the accruals anomaly. The theories have been applied when investigating other markets to describe and analyse the accruals anomaly. Empirical foundation: The study examines firms listed on NASDAQ OMX Stockholm main market. Portfolios are formed each year between 2002 and 2012. The majority of the data has been collected using Thomson Reuters Datastream. Conclusions: The results show that while the benchmarks classify firms differently, the difference does not spill over to the abnormal returns earned by the investor. Overall, the results for all risk-adjustment methods show that investor may not earn positive abnormal returns from the trading strategy in Sweden.
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