We examine whether investing experience can dampen the disposition effect, that is, the fact that investors seem to hold on to their losing stocks to a greater extent than they hold on to their winning stocks. To do so, we devise a computer program that simulates the stock market. We use the program in an experiment with two groups of subjects, namely experienced investors and undergraduate students (the inexperienced investors). As a control procedure, we consider random trade decisions made by robot subjects. We find that though both human subjects show the disposition effect, the more experienced investors are less affected.
This article analyzes earnings management through real operating activities by firms in the Brazilian capital market. This way of manipulating outcomes takes place when managers make suboptimal decisions in terms of timing and volume of operating activities. This study tests the hypothesis that firms engaged in earnings management through real operating activities might have a negative impact on future returns. Our analysis is restricted to nonfinancial firms listed on the Brazilian Securities, Commodities, and Futures Exchange (BM&FBOVESPA) with annual data made available by the Economatica® for the years from 1989 to 2012. Empirical tests involving regression on panel data and estimation of future firm returns and outcomes indicate a negative impact on return on assets (ROA) related to manipulation through real operating activities. This finding is useful for several stakeholders. It demonstrates that manipulation through real operating activities takes place in the Brazilian capital market, suggesting that earnings management extends beyond discretionary accounting choices in this country. The main contribution is demonstrating a negative relation between earnings management by using real operating activities and future returns. This finding is relevant for investors, particularly for the purposes of comparison and valuation of securities.
This paper describes a study that analyses earnings management strategies involving accounting choices or real activities in Brazil. An analysis is conducted of the relationships between earnings management strategies their determinant costs and of the temporal sequence in which these management strategies are applied. The results of empirical tests indicate that adoption of management strategies is dependent on their relative costs. There is a temporal relationship between the two types of strategies for manipulation of year-end results, with real activities preceding accounting choices. It was also observed that the level of manipulation by accruals (real activities) reduced (increased) after adoption of the IFRS in Brazil.
This paper analyzes the phenomenon known as accrual anomaly in Brazil. In particular, we examine two hypotheses: (a) that the earnings expectation included in the stock price fails to reflect the difference in persistence of the earnings components (accruals and cash flows); and (b) that the construction of a hedge portfolio by taking a long (short) position in assets with low (high) accruals generates consistently abnormal returns. The data set includes nonfinancial firms listed on the BM&FBOVESPA between 1990 and 2008. The empirical tests required conducting panel data regressions to identify the persistence of earnings and their components; the Mishkin test to identify whether the market rationally prices earnings; and the composition of a zero-investment (hedge) portfolio to analyze whether a trading strategy based on accruals consistently provides abnormal positive returns. The results indicate that the accrual component is not mispriced by the Brazilian market, and that a trading strategy based on accruals does not provide consistently positive returns. Although this evidence does not encourage arbitrage, the results are relevant from various perspectives. The methodology applied permitted identifying the quality of earnings and of their components, as well as association between the components of earnings and returns.
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