The effect of firm-specific returns variation on R2: From the perspective of the accrual anomaly
Item
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Title
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The effect of firm-specific returns variation on R2: From the perspective of the accrual anomaly
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Identifier
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d_2009_2013:8b75f12a288d:10155
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identifier
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10373
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Creator
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Chung, Wei-Hsin Alex,
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Contributor
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Thom Thurston
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Date
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2009
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Language
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English
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Publisher
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City University of New York.
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Subject
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Finance | Accural Anomaly | ADR | Capital Asset Pricing Model | Earnings Management | Idiosyncratic Risk | R-square
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Abstract
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R2, calculated as CAPM of stock returns regressed on a market index, is constructed to explain stock price change by market-wide information. In my dissertation, I have analyzed the behavior of R 2 and its decomposed variations (firm-specific and market-wide variation) with regard to the accrual anomaly, domestically and internationally. My major results in the US are as follows. First, the effect of accrual anomaly significantly lowering future R2 associated with higher firm-specific variations is robust and is not affected by (1) size, firm age, and other control variables; (2) industry risk and market risk; (3) other alternative explanations of accrual anomaly (value-glamour anomaly, bankruptcy risk, and arbitrage risk). Second, earning management is likely to be the reason why R2 decreases the accrual anomaly. Third, the difference in R2 between portfolios of good/poor accrual quality is subject to firm-specific variation. Fourth, the robustness of accrual anomaly significantly lowering future R2 even applies to the industry level. Internationally, I find similar evidence for 9 countries (including the U.S.) out of 31 countries, and most of these 9 are developed countries. My study shows that an association between accrual anomaly and future R2 is more likely in countries with certain characteristics: a common law tradition, a low level of government corruption, low accounting standards, and wide dispersion of stock ownership. Analysis of ADR supplements the international sample study in exploring the relation of institutional change to the impact of accruals on R2. In chapter 2, I also investigate the relation between stock return variation and extreme trading volume in the tail by demonstrating the asymmetry of the return and volume in six emerging countries. For four out of six countries in the sample, the results from the bivariate threshold model indicate that during extreme price movements the asymmetry of the return and volume still holds.
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Type
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dissertation
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Source
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2009_2013.csv
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degree
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Ph.D.
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Program
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Economics
