Does the accrual anomaly exist on the JSE?

Camden-Smith, Michael Thomas
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Utilising the seminal work of Sloan (1996) this study investigates the accrual anomaly in South Africa. Utilising all firms listed on the All Share Index (ALSI) for the period 2002 to 2016, this study employs various tests surrounding the accrual anomaly. A regression analysis highlights a low persistence of earnings and the popular Mishkin (1983) test fails to prove a sufficient market reaction following changes in earnings. Accruals could pre-empt dramatic changes in future earnings but the observed stock price adjustment was only implicit in firms that suffered a drop in earnings. Additionally, the presence of post-earnings announcement drift (PEAD) meant the market reaction following an earning’s announcement was gradually reflected in the stock price. The accrual anomaly relies on an overreaction following an earning’s surprise in the month that financials are released. All the previously mentioned meant that a simple fundamental-based (cash flow) investment strategy far outperformed a strategy based on earnings’ fixation (accruals). This study failed to find conclusive evidence of the accrual anomaly on the JSE.
A research report presented in partial fulfillment (50%) of the requirements for the degree of Master of Commerce in Business Economics (Finance) in the School of Economic and Business Sciences at the University of the Witwatersrand, Johannesburg September 2017
Camden-Smith, Michael Thomas (2016) Does the accrual anomaly exist on the JSE?, University of the Witwatersrand, Johannesburg, <>