Capital Investments, Accruals, and Stock Returns

This research examines “accrual anomaly”, “capital investment anomaly” and enhancing of performance of portfolio with exploiting both anomalies at the same time in Iran capital market. This topic is tested with examining performance portfolios based on capital investment and accrual anomaly, using three measures of returns. Based on a sample 480 company-years observations within firms listed in Tehran Stock Exchange (TSE) during the period of 1380-1386. Results show that “capital anomaly” and “accrual anomaly” exist in Iran capital market and they are distinct, even these two anomalies may be related in a certain way. The result also indicate that, after adjustment for the Fama-French three risk factors, investors earn higher returns by using a strategy that exploits both anomalies at the same time than by exploiting either anomaly alone.