DOI

10.17077/etd.48m968up

Document Type

Dissertation

Date of Degree

Spring 2016

Degree Name

PhD (Doctor of Philosophy)

Degree In

Business Administration

First Advisor

Collins, Daniel W

Second Advisor

Gleason, Cristi A

First Committee Member

Hribar, Steven P

Second Committee Member

Lie, Erik

Third Committee Member

Melessa, Samuel J

Abstract

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.

Public Abstract

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.

Keywords

publicabstract, asset pricing anomalies, book-tax differences, capital markets, mispricing, value-glamour

Pages

ix, 78 pages

Bibliography

Includes bibliographical references (pages 73-78).

Copyright

Copyright 2016 Bradford Fitzgerald Hepfer

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