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Academic audit

Failedequity XS fundamental

Accrual Anomaly

The three-gate gauntlet · genuine only if it clears all three and survives adversarial refutation
Gate 1
Survivorship-free
free
clean panel
Gate 2
Placebo ≥ P95
not run
Eliminated here
Gate 3
Cost-aware net
RF -0.51
net-negative after costs
Failed
Worst 12-month leg (RF)-0.94
−1.00 floor0
Every strategy here — winners included — loses in its worst 12 months. Depth is honest context, not the verdict.
Rejected at the cost gate — the net edge turns negative once modelled costs are applied.

The accrual anomaly, documented by Sloan (1996), goes long firms with low accruals and short firms with high accruals, on the finding that the accrual component of earnings is less persistent than the cash component and that prices are slow to reflect this.

What we found

On our survivorship-free US common-stock panel, the Sloan long/short construction is net-negative after realistic modelled costs. The result is consistent with post-publication decay: an effect that was documented in 1996 does not survive as a tradeable spread in the modern cost-aware test window. There is no edge here after costs, and the worst-year risk-adjusted return is deeply negative. This is a failed screen, not a diversifying factor-leg.

How we tested it
2005–2026 test windowmodelled liquidity-aware costssurvivorship free
  • Data: survivorship-free 1077-name US common-stock panel, 2005-2026. Realistic modelled costs.
  • Placebo / robustness test: real result vs random baskets or shuffled signals (real vs the 95th percentile of random)
Source: Sloan (1996), "Do stock prices fully reflect information in accruals and cash flows...", Accounting Review
Read the paper ↗
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Research, not investment advice. “Validated” factor-legs are market-neutral diversifying building blocks with a losing worst year — none is a standalone tradeable strategy. Metrics are cost-aware and modelled (not live fills); the 2005–2026 test window is out-of-sample versus the source paper. Dollar figures are not returns and are omitted by design.