Market timing with aggregate accruals

Abstract

We propose a market-timing strategy that aims to exploit aggregate accruals' return forecasting power. Using several performance measures of the aggregate accruals-based market-timing strategy, such as excess portfolio return, Sharpe ratio, and Jensen's alpha, we find robust evidence that, relative to the passive investment strategy of buying and holding the stock market, the market-timing strategy delivers superior performance that is both statistically and economically significant. Specifically, on average, the market-timing strategy beats the SP500 index by 6 to 22 percentage points (annualized) after controlling for transaction costs over the 1980-2004 period.© 2009 Palgrave Macmillan.