Short Arbitrage, Return Asymmetry and the Accrual Anomaly

David A. Hirshleifer, Siew Hong Teoh, Jeff Jiewei Yu
2010 Social Science Research Network  
We find a positive association between short-selling and accruals during 1988-2003. Short arbitrage occurs primarily among firms in the top accrual decile, and firms with sufficiently high supply of loanable shares (proxied by institutional holdings). Consistent with limits to short arbitrage, there is an asymmetry between the up-and down-sides of the accrual anomaly. Asymmetry is only present on NASDAQ, and is significantly stronger among firms with low institutional holdings, low liquidity
more » ... s, low liquidity (turnover and size), and high residual volatility. Thus, there is short arbitrage of the accrual anomaly, but short sale constraints limit its effectiveness.
doi:10.2139/ssrn.1026044 fatcat:lsrryiqqjfcwpmfimdsl2hqxi4