Volatility and Risk-Relevance of Comprehensive Income for Non-Financial Firms
Posted: 29 Nov 2010 Last revised: 4 May 2011
Date Written: November 28, 2010
We examine the volatility and risk relevance of three income measures; net income (NI), comprehensive income (CI) and a constructed measure of adjusted comprehensive income (ACI) for a sample of 79 New Zealand non-financial firms from 2003-2008. We find for the majority of the firms, CI is more volatile than NI or ACI. Further, the relative volatility of ACI is also significantly higher than volatility of NI. We find positive correlation of the three income volatility measures with volatility of stock returns. We find no evidence that these income volatility measures have significant association with beta. The incremental effect of both CI and ACI is negligible on stock prices once the effect of NI is accounted for. Our results support the claim that CI is more volatile than NI and may not be a better proxy of firm’s performance than NI.
Keywords: Comprehensive Income, Net Income, Adjusted Comprehensive Income, Volatility
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