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Specifically, the procedure consists of forming zero-investment portfolios from assets that compose the sample, based on the magnitude of the accruals, and identifying the returns obtained by taking a long (short) position in assets with low (high) accruals and by hedging the returns of assets with extreme accruals.
The gross and abnormal returns are separated into zero-investment portfolios, with the firms grouped according to the magnitude of their accruals.
For final verification of the occurrence of accrual anomaly in the Brazilian capital market, we constructed a zero-investment portfolio based on the magnitude of accruals.
The procedure generally used to test this property consists of analyzing a zero-investment portfolio.
Bernard, Thomas and Wahlen (1997) pointed out that an anomaly based on accounting numbers will indicate mispricing by the market only if the returns provided by a zero-investment portfolio are consistently positive.