New Accounting Standards and the Performance of Quantitative Investors

Author: Travis Dyer, Nicholas M. Guest, Elisha Yu

Quantitative investing relies on historical data and limited day-to-day human involvement, which could create short-term inflexibility in the face of changing economic conditions. In this study, we examine quantitative investors’ ability to navigate a common and occasionally material change to the financial data generating process: new accounting standards. We find that returns of quantitative mutual funds temporarily decrease following the implementation of standards that change the definition of key accounting variables. The lower performance we document is relative to more traditional “discretionary” funds that rely heavily on human discretion to make investment decisions. Our result is stronger for value funds, which rely heavily on accounting data, and absent among funds slanted towards price-based strategies, including momentum and size. When we further investigate funds’ operations, we observe excess portfolio turnover following the implementation of accounting standards. Relatedly, quantitative underperformance is concentrated among funds holding more stocks. Overall, our results highlight a significant adjustment cost associated with accounting regulation that could become even more significant as more investors turn to quantitative strategies.

Dyer, Travis and Guest, Nicholas M. and Yu, Elisha, New Accounting Standards and the Performance of Quantitative Investors (November 22, 2021). Available at SSRN: or

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