Accruals and Aggregate Stock Market Returns

Past research has shown that the level of operating accruals is a negative cross-sectional predictor of stock returns. This paper examines whether the accrual anomaly extends to the aggregate stock market. In contrast with cross-sectional findings, there is no indication that aggregate operating accruals is a negative time series predictor of stock market returns; the relation is strongly positive for the market portfolio and also for several sector and industry portfolios. In addition, innovations in accruals are negatively contemporaneously associated with market returns, suggesting that changes in accruals contain information about changes in discount rates, or that firms manage earnings in response to market-wide undervaluation.accruals; return predictability; stock market returns; market efficiency; asset pricing; anomalies; accounting; earnings fixation

The Accrual Anomaly: Risk or Mispricing?

We 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 (1993). In time series regressions, a model that includes the Fama-French factors and the additional accrual factor captures the accrual anomaly in average returns. However, further time series and cross-sectional tests indicate that it is the accrual characteristic rather than the accrual factor loading that predicts returns. These findings favor a behavioral explanation for the accrual anomaly.Capital markets; accruals; market efficiency; behavioral finance; limited attention

Do Investors Overvalue Firms With Bloated Balance Sheets?

If investors have limited attention, then accounting outcomes that saliently highlight positive aspects of a firm's performance will promote high market valuations. When cumulative accounting value added (net operating income) over time outstrips cumulative cash value added (free cash flow), it becomes hard for the firm to sustain further earnings growth. When the balance sheet is 'bloated' in this fashion, we argue that investors with limited attention will overvalue the firm, because naïve earnings-based valuation disregards the firm's relative lack of success in generating cash flows in excess of investment needs. The level of net operating assets, the difference between cumulative earnings and cumulative free cash flow over time, is therefore a measure of the extent to which operating/reporting outcomes provoke excessive investor optimism. Therefore, if investor attention is limited, net operating assets will negatively predict subsequent stock returns. In our 1964-2002 sample, net operating assets scaled by beginning total assets is a strong negative predictor of long-run stock returns. Predictability is robust with respect to an extensive set of controls and testing methods.valuation, financial reporting, limited attention, behavioral economics, behavioral accounting, behavioral finance, market efficiency, psychology and economics

Land-Atmosphere Interaction in the Southwestern Karst Region of China

Land-atmosphere interaction in the southwestern Karst region of China was investigated from two aspects: response of land cover to climate change and climatic effects of Karst rocky desertification. The first part focused on the temporal-spatial variation of growing-season normalized difference vegetation index (NDVI) and its relationship with climate variables. The relationships between growing-season NDVI with temperature and precipitation were both positive, indicating its limiting role on the distribution and dynamic of vegetation cover in the study area. The second part was designed to investigate whether the changed vegetation cover and land surface processes in the Karst regions was capable of modifying the summer climate simulation over East Asia. It was shown that land desertification resulted in the reduced net radiation and evaporation in the degraded areas. The East Asian summer monsoon was weakened after land degradation. Such circulation differences favored the increase in moisture flux and clouds, and thereby causing more precipitation in southeast coastal areas. Based on the above findings, it can be concluded that vegetation cover in Karst region was sensitive to climate change at larger scale, and on the other hand, there was significant feedback of vegetation cover change to regional climate by altering water and energy balance

Accruals and Aggregate Stock Market Returns

Past research has shown that the level of operating accruals is a negative cross-sectional predictor of stock returns. This paper examines whether the accrual anomaly extends to the aggregate stock market. In contrast with cross-sectional findings, there is no indication that aggregate operating accruals is a negative time series predictor of stock market returns; the relation is strongly positive for the market portfolio and also for several sector and industry portfolios. In addition, innovations in accruals are negatively contemporaneously associated with market returns, suggesting that changes in accruals contain information about changes in discount rates, or that firms manage earnings in response to market-wide undervaluation

Accruals and Aggregate Stock Market Returns

Past research has shown that the level of operating accruals is a negative cross-sectional predictor of stock returns. This paper examines whether the accrual anomaly extends to the aggregate stock market. In contrast with cross-sectional findings, there is no indication that aggregate operating accruals is a negative time series predictor of stock market returns; the relation is strongly positive for the market portfolio and also for several sector and industry portfolios. In addition, innovations in accruals are negatively contemporaneously associated with market returns, suggesting that changes in accruals contain information about changes in discount rates, or that firms manage earnings in response to market-wide undervaluation

The Accrual Anomaly: Risk or Mispricing?

We 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 (1993). In time series regressions, a model that includes the Fama-French factors and the additional accrual factor captures the accrual anomaly in average returns. However, further time series and cross-sectional tests indicate that it is the accrual characteristic rather than the accrual factor loading that predicts returns. These findings favor a behavioral explanation for the accrual anomaly

Enhancing Digestibility and Ethanol Yield of Populus Wood via Expression of an Engineered Monolignol 4-O-Methyltransferase

Producing cellulosic biofuels and bio-based chemicals from woody biomass is impeded by the presence of lignin polymer in the plant cell wall. Manipulating the monolignol biosynthetic pathway offers a promising approach to improved processability, but often impairs plant growth and development. Here, we show that expressing an engineered 4-O-methyltransferase that chemically modifies the phenolic moiety of lignin monomeric precursors, thus preventing their incorporation into the lignin polymer, substantially alters hybrid aspens’ lignin content and structure. Woody biomass derived from the transgenic aspens shows a 62% increase in the release of simple sugars and up to a 49% increase in the yield of ethanol when the woody biomass is subjected to enzymatic digestion and yeast-mediated fermentation. Moreover, the cell wall structural changes do not affect growth and biomass production of the trees. Our study provides a useful strategy for tailoring woody biomass for bio-based applications