Short Arbitrage, Return Asymmetry, and the Accrual Anomaly

We find a positive association between short selling and accruals during 1988—2009, and that asymmetry between the up- and downsides of the accrual anomaly is stronger when constraints on short arbitrage are more severe (low availability of loanable shares as proxied by institutional holdings). Shor...

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Bibliographic Details
Published in:The Review of financial studies 2011-07, Vol.24 (7), p.2429-2461
Main Authors: Hirshleifer, David, Teoh, Siew Hong, Yu, Jeff Jiewei
Format: Article
Language:English
Subjects:
Accruals
Arbitrage
Asymmetry
Financial engineering
Financial portfolios
Interest
Investment analysis
Investment returns
Investors
Mathematical finance
Modeling
Nasdaq Composite Index
Portfolio management
Portfolio selection
Rates of return
Ratios
Short sales
Short-selling
Statistical significance
Stock exchanges
Studies
Time series
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Summary:We find a positive association between short selling and accruals during 1988—2009, and that asymmetry between the up- and downsides of the accrual anomaly is stronger when constraints on short arbitrage are more severe (low availability of loanable shares as proxied by institutional holdings). Short arbitrage occurs primarily among firms in the top accrual decile. Asymmetry is present only on NASDAQ. Thus, there is short arbitrage of the accrual anomaly, but short-sale constraints limit its effectiveness.
ISSN:0893-9454
1465-7368
DOI:10.1093/rfs/hhr012