Using a simulation analysis based on historical U.S. stock market returns, we assess the total tax burden (federal plus state) of active portfolio management. Our results show that taxes can erode a large portion of the profits, even for moderately intense trading strategies where the capital...

In this paper, I examine whether consistent quarterly earnings signals generate momentum and subsequent return reversals. Conditioning on growth consistency in quarterly earnings, I show that an unbroken earnings string creates a strong financial momentum that peaks at the end of the first three...

We examine firms' financial reporting practices during stub periods that are induced by fiscal year changes and not covered by regular quarters. We find that firms report much lower income for the missing months than for adjacent quarters, mainly by recording higher operating expenses. We also...

In this study, we investigate the impact of IFRS adoption in Europe and Australia on the relevance of book value and earnings for equity valuation. Using a sample of 3,488 firms that initially adopted International Financial Reporting Standards (IFRS) in 2005, we are able to compare the figures...

This article describes employee stock option mechanism and underlines the rationale for ESO grants. It also explains how ESOs differ from ordinary call options. In recent years, accounting scandals (e.g., Enron, Tyco and WorldCom) created an environment that demanded more transparent and higher...

We use earnings forecasts from a cross-sectional model to proxy for cash flow expectations and estimate the implied cost of capital (ICC) for a large sample of firms over 1968-2008. The earnings forecasts generated by the cross-sectional model are superior to analysts' forecasts in terms of...

Collins and Hribar (2002) exposes the distorting effects of corporate events, such as mergers and divestitures, in accrual-based trading strategies using the balance sheet method documented in Sloan (1996). This paper contributes to the accruals literature by investigating and documenting the...

We investigate the extent to which hedge fund managers smooth self‐reported returns. In contrast with prior research on the “anomalous” properties of hedge fund returns, we observe the mechanisms used to price the fund's investment positions and report the fund's performance to investors,...

This study documents the prominent role of idiosyncratic risk in impeding arbitrage activities with regard to a new value-to-price anomaly. Adopting the theoretical foundation and empirical specification of Hwang and Sohn's (2010) real-option-based valuation model, we measure the intrinsic value...

As an alternative way to shed light on the debate over whether the modified Dechow and Dichev (2002) AQ measure is a priced risk factor, we examine the effect of seasonality on the pricing of AQ. We find that (1) high AQ stocks outperform low AQ stocks only in January; (2) during the rest of the...