The Accrual Anomaly: Annual Long-Short Stock Sorting

Summary

The document describes a U.S. equity strategy based on balance-sheet accruals, the noncash component of reported earnings. It estimates accruals from annual changes in current assets, cash, current liabilities, short-term debt, income taxes payable, and depreciation, then scales the result by average total assets. Stocks are ranked into deciles, with a long position in the lowest-accrual group and a short position in the highest-accrual group.

The portfolio is intended to rebalance annually in May, after companies have reported earnings. The code uses a liquid-stock universe followed by fundamental-data filters and equal allocations within each side. Although the strategy is presented as an established anomaly, this document contains no performance results or validation. Implementation details also merit scrutiny: universe selection is scheduled around month-end with an April flag, and the trade execution and short-side holdings logic may not fully implement the described annual rebalance as written. Fees, leverage, data availability, and shorting constraints can also materially affect realized results.

Key ideas

• The strategy ranks stocks by balance-sheet accruals scaled by average total assets.
• It buys the lowest-accrual decile and shorts the highest-accrual decile.
• The intended portfolio rebalance occurs annually in May after earnings publication.
• The supplied code has execution and scheduling details that should be checked before relying on it.
• No strategy performance results or validation are reported.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.