Examining the Performance of Accruals Trading Strategy

The main purpose of this article is to examine performance of the accruals trading strategy. According to Accruals trading strategy, investor is taking a long position in firms with relative low accruals level and is taking a short position in firms with relative high accruals level. Specifically the study examines the possibility of earning excess return and excess risk adjusted return implementing the traditional accruals strategy and percent accruals strategy. For this purpose, we collect monthly data of 236 companies listed in Tehran Stock Exchange for the years 2011-2018. The hypotheses were tested using hedge portfolio method and t-student test. The findings show that implementing the percent accruals strategy, results in earning excess return and excess risk adjusted return. Furthermore implementing the traditional accruals strategy, results in earning excess return. But earning excess risk adjusted return implementing the traditional accruals strategy, was not verified. Since earning excess return in the efficient market that has no anomalies, is not possible, so the findings show that there is accruals anomaly in Tehran Stock Exchange. Furthermore the results show that percent accruals strategy is more productive than traditional accruals strategy.