The accrual anomaly in Norway and Sweden
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- Master Thesis 
This Master’s thesis extends the existing literature on the accrual anomaly, first documented by Sloan (1996), by investigating its existence in the Norwegian and Swedish stock markets. First, we look at whether the persistence of earnings performance is decreasing in the magnitude of the accrual component of earnings and increasing in the cash flow component, where we find that accruals are a less persistent measure of future earnings than cash flow. Next, we investigate whether investors are aware of the lower persistence attributable to accruals or if they naïvely look to earnings without consideration of its components. Our findings here do not yield significant results, which means that we cannot conclude that the naïve investor hypothesis holds. Last, we test whether it is possible to gain abnormal return by taking a long position in the stock of firms with a relatively low level of accruals, and a short position in those with a relatively high level of accruals. We find that the long-short strategy yields an abnormal yearly return of 7.0%. Further, we test the hypotheses for the Norwegian and Swedish data separately, as well as base the trading strategy on different components of accruals. We find that a long-short strategy based on non-current operating accruals yields an abnormal yearly return of 12.4% for Norway, while for Sweden, the findings suggest that an investor could gain an abnormal yearly return of 9.7% when basing the long-short strategy on both current and non-current operating accrual. Next, we find a significant difference before and after 2005 in Norway, which marks the transition from GAAP to IFRS, where the results suggests that, after 2005, the accrual anomaly is not present at the Oslo stock exchange. In Sweden however, we do not find such a difference.