An Examination of the Naive-Investor Hypothesis in Accruals Mispricing in Tunisian Firms

Journal of International Financial Management & Accounting (Impact Factor: 0.33). 05/2011; 22(2). DOI: 10.1111/j.1467-646X.2011.01048.x


This study extends previous studies on accrual anomaly to investigate the emerging market's mispricing of accruals. Using Mishkin (1983) test, hedge portfolio test and Fama and MacBeth (1973) regression, we test whether the Tunisian Stock Exchange price rationally reflects the 1-year ahead earnings implications of its earnings components. We find that earnings and their cash flow and accrual components are not rationally priced by the market. Additionally, this paper examines the role of sophistication investors in the pricing of earnings and their components. Our results show that accruals for firms with higher level of institutional ownership are not mispriced, while accruals for firms with lower institutional ownership are overpriced significantly by the market.

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Available from: Imen Khanchel El Mehdi, Feb 28, 2014
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