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Is Accruals Quality a Priced Risk Factor?John E. CoreMassachusetts Institute of Technology (MIT) - Sloan School of Management Wayne R. GuayUniversity of Pennsylvania - Accounting Department Rodrigo S. VerdiMassachusetts Institute of Technology (MIT) December 13, 2007 Abstract: In a recent and influential empirical paper, Francis, LaFond, Olsson, and Schipper (2005) 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.
Number of Pages in PDF File: 50 Keywords: Asset pricing tests, Accruals quality, Information risk, Portfolio theory and diversification JEL Classification: D80, G11, G12, M41 working papers seriesDate posted: June 28, 2006 ; Last revised: November 16, 2011Suggested CitationContact Information
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