Date of this Version
Journal of Accounting and Economics
In a recent and influential empirical paper, Francis, LaFond, Olsson, and Schipper (FLOS) [2005. The market pricing of accruals quality. Journal of Accounting and Economics 39, 295–327] conclude that accruals quality (AQ) is a priced risk factor. We explain that FLOS’ regressions examining a contemporaneous relation between excess returns and factor returns do not test the hypothesis that AQ is a priced risk factor. We conduct appropriate asset-pricing tests for determining whether a potential risk factor explains expected returns, and find no evidence that AQ is a priced risk factor.
© 2008. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/
asset-pricing tests, accruals quality, information risk, portfolio theory and diversification
Core, J. E., Guay, W. R., & Verdi, R. S. (2008). Is Accruals Quality a Priced Risk Factor?. Journal of Accounting and Economics, 46 (1), 2-22. http://dx.doi.org/10.1016/j.jacceco.2007.08.001
Date Posted: 27 November 2017
This document has been peer reviewed.