The limits to arbitrage revisited: The accrual and asset growth anomalies

Abstract

Using idiosyncratic volatility as a proxy for arbitrage costs, the authors found that the highly publicized accrual and asset growth anomalies exist because of high barriers to arbitrage, occurring predominantly in the universe of stocks with higher arbitrage risks. Therefore, investors who seek to profit from the accrual and asset growth anomalies must bear greater uncertainty in outcomes than was previously understood.