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Are accruals mispriced? Evidence from tests of an Intertemporal Capital Asset Pricing Model

Journal of Accounting and Economics 2008 45(1), 55-77
This paper proposes a risk-based explanation for the accrual anomaly. Risk is measured using a four-factor model motivated by the Intertemporal Capital Asset Pricing Model. Tests of the model suggest that a considerable portion of the cross-sectional variation in average returns to high and low accrual firms is explained by risk. The four-factor model also performs better than some other widely used models in pricing a number of different hedge portfolios.