Accrual mispricing, value-at-risk, and expected stock returns

We investigate the extent to which a parsimonious measure of maximum likely loss that captures tail risk returns—known as value-at-risk (VaR)—explains relationship between accruals and cross-sectional dispersion expected stock returns. construct portfolios based on Sloan’s (Account Rev 71(3):289–315, 1996) total (TA) individual asset-level VaR, reflects dynamic behavior asset distribution. document VaR is in congruence with portfolio-level there significant positive cross-section portfolio Allowing double-sort involving TA further suggests spread low- high-TA significantly attenuated after controlling for VaR. also conduct firm-level regression analysis demonstrate TA- VaR-based characteristics—but not factor-mimicking portfolios—are compensated higher returns, neither subsumes nor subsumed by TA. Finally, our decomposition at least 7% accrual premium even presence size book-to-market. These findings lend support mispricing explanation anomaly.