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A closer examination of the book-tax difference pricing anomaly

In this study, I examine whether the pricing of book-tax differences reflects mispricing or a priced risk factor. I provide new evidence that temporary book-tax differences are mispriced by developing portfolios that trade on the information in book-tax differences for future accruals and cash flows. I develop and test predictions on whether book-tax difference mispricing is the value-glamour anomaly in disguise. Both signals of mispricing relate to firm growth and, thus, both may capture mispricing due to over-extrapolation of realized growth to future growth. I find that the book-tax difference pricing anomaly is subsumed by the value-glamour anomaly. Specifically, trading on the information in book-tax differences does not yield incremental returns relative to a value-glamour trading strategy. Hence, mispricing associated with book-tax differences relates more generally to the mispricing of expected growth as extrapolated from past growth.

Identiferoai:union.ndltd.org:uiowa.edu/oai:ir.uiowa.edu:etd-6440
Date01 May 2016
CreatorsHepfer, Bradford Fitzgerald
ContributorsCollins, Daniel W., Gleason, Cristi A.
PublisherUniversity of Iowa
Source SetsUniversity of Iowa
LanguageEnglish
Detected LanguageEnglish
Typedissertation
Formatapplication/pdf
SourceTheses and Dissertations
RightsCopyright 2016 Bradford Fitzgerald Hepfer

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