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Jiajun Jiang, Qi Liu, and Bo Sun<\/a> | Discretionary accruals are positively associated with stock returns at the aggregate level but negatively so in the cross section. Using Baker-Wurgler investor sentiment index, we find that a significant presence of sentiment-driven investors is important in accounting for both patterns. We document that the aggregate relation is only prominent during periods of high investor sentiment. Similarly, the cross-section relation is considerably stronger in high-sentiment periods in both economic magnitude and statistical significance. We then embed investor sentiment into a stylized model of earnings management, and illustrate that a positive (negative) relationship between stock returns and earnings management can endogenously emerge in the aggregate (cross section). Our analysis suggests that the (discretionary) accrual-return relation at both the aggregate and firm levels at least partially reflects mispricing that is related to market-wide investor sentiment.
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Jiajun Jiang, Qi Liu, and Bo Sun | Discretionary accruals are positively associated with stock returns at the aggregate level but negatively so in the cross section. Using Baker-Wurgler investor sentiment… <\/p>\n","protected":false},"author":1,"featured_media":702,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"spay_email":"","jetpack_publicize_message":"","jetpack_is_tweetstorm":false},"categories":[2],"tags":[4],"jetpack_featured_media_url":"https:\/\/i2.wp.com\/lehighuniversity.org\/finance\/wp-content\/uploads\/2020\/09\/53e6d24a4f52b10ff3d8992cc62d3e79173edde24e507749752b78d3974cc3_640.jpg?fit=640%2C426&ssl=1","jetpack_publicize_connections":[],"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/lehighuniversity.org\/finance\/wp-json\/wp\/v2\/posts\/703"}],"collection":[{"href":"https:\/\/lehighuniversity.org\/finance\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/lehighuniversity.org\/finance\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/lehighuniversity.org\/finance\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/lehighuniversity.org\/finance\/wp-json\/wp\/v2\/comments?post=703"}],"version-history":[{"count":1,"href":"https:\/\/lehighuniversity.org\/finance\/wp-json\/wp\/v2\/posts\/703\/revisions"}],"predecessor-version":[{"id":704,"href":"https:\/\/lehighuniversity.org\/finance\/wp-json\/wp\/v2\/posts\/703\/revisions\/704"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/lehighuniversity.org\/finance\/wp-json\/wp\/v2\/media\/702"}],"wp:attachment":[{"href":"https:\/\/lehighuniversity.org\/finance\/wp-json\/wp\/v2\/media?parent=703"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/lehighuniversity.org\/finance\/wp-json\/wp\/v2\/categories?post=703"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/lehighuniversity.org\/finance\/wp-json\/wp\/v2\/tags?post=703"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}