Premium
Do accounting information and market environment matter for cross‐asset predictability?
Author(s) -
Thakerngkiat Narongdech,
Nguyen Hung T.,
Nguyen Nhut H.,
Visaltanachoti Nuttawat
Publication year - 2021
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/acfi.12736
Subject(s) - predictability , sharpe ratio , capital asset pricing model , market liquidity , accrual , leverage (statistics) , economics , financial economics , econometrics , earnings , market timing , monetary economics , business , accounting , statistics , portfolio , mathematics
This paper examines whether the differences in accounting information between stocks affect cross‐asset return predictability. We use a comprehensive set of accounting variables and find that abnormal accruals, earnings smoothness, book‐to‐market, firm age, leverage, abnormal capital investment and investment growth, among others, explain the variation in return predictability across pairing stocks. Moreover, our results show that cross‐asset predictability varies over time and is associated with funding liquidity and market sentiment. A simple trading strategy based on our findings yields a higher mean return, lower standard deviation and higher Sharpe ratio compared to a buy‐and‐hold strategy.