An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Umit Gurun
University of Texas at Dallas

Ashiq Ali
The University of Texas at Dallas

Abstract: This study examines the effect of investor sentiment on accounting-based anomalies. We find that for small firms, the accruals effect is greater during high sentiment periods as compared to the low sentiment periods. Similar results obtain for the net operating asset anomaly. We conclude that investor optimism during high sentiment period causes investors to be more naive in interpreting the accounting data, causing the accounting anomalies to more pronounced during those periods.

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