The HML is a zero-investment portfolio that is long on the highest decile group of book-to-market (B/M) equity indices and short on the lowest decile group.
The SMB is a zero-investment portfolio that is long on the highest decile group of small capitalization (cap) equity indices and short on the lowest decile group.
The WML is a zero-investment portfolio that is long on the highest decile group of previous 1-year return winner equity indices and short on its lowest decile group (loser equity indices).
Table 2 reports the equal and value-weighted style-adjusted buy-and-hold returns of high, mid, and low RRI portfolios, as well as a high minus low RRI zero-investment portfolio and all IPOs, for the 3- to 5-year period after the offer.
In this subsection, I report calendar-time factor-adjusted performance of high and low RRI portfolios as well as a high minus low RRI zero-investment portfolio and all IPOs.
In Panel A, the 3-factor intercept for the equal-weighted high minus low RRI zero-investment portfolio is -1.42% (significant at the 5% level), indicating that the high-RRI portfolio underperforms the low-RRI portfolio by 17.04% (1.42% x 12 months) over the year during which firms are in the sample.
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.
We also construct two other explanatory variables based on the zero-investment portfolio of momentum and reversal returns.
On top of that, the incorporation of a zero-investment portfolio even strengthens the role of the positive endogenous information.
The returns on the zero-investment portfolios from sorts on skewness remain relatively stable over time.
One observation of the emerging markets distorts the picture: although the asset pricing tests' hypotheses are rejected for the large, liquid, open, and developed countries, and accepted in their opposites, the sheer scale of the excess and abnormal returns on the zero-investment portfolios exceeds sometimes the second group.