| Popis: |
Hirshleifer et al. (2004) argue that scaled Net Operating Assets (NOA) measure the extents to which operating/reporting outcomes provoke excessive investor optimism. In this paper, I argue that at least part of the information conveyed by NOA is industry common and cannot be diversified away when forming industry portfolios conditioning on NOA. If investors do not see through NOA that come in part from inter-industry differences, then investor misperceptions should be related to both the industry and the firm-specific components of NOA. Consistent with this hypothesis, in the 1964-2002 sample, both the cross industry and the within industry components of NOA are strong negative predictors for future stock returns. In contrast, I find that the Accruals effect of Sloan (1996) comes entirely from the industry-adjusted component of Accruals. The industry NOA trading strategy survives the statistical arbitrage test introduced by Hogan et al. (2004), which is designed to distinguish between risk premium and mispricing explanations. I also examine the importance of the time series aggregation property of NOA and its inclusion of investment information, and provide evidence that the industry NOA effect is independent of the industry price momentum effect (Moskowitz and Grinblatt, 1999), and it is not driven by the clustering of either new equity issuance or M&A activities within industries. |
