Classification and Market Pricing of the Cash Flows and Accruals on Trading Positions

The Accounting Review, 2006, Vol. 81 (2): 443-472

57 Pages Posted: 13 Jun 2005 Last revised: 24 Mar 2019

See all articles by Stephen G. Ryan

Stephen G. Ryan

New York University (NYU) - Leonard N. Stern School of Business

Jenny Wu Tucker

University of Florida - Warrington College of Business Administration

Paul Zarowin

New York University (NYU) - Department of Accounting

Multiple version iconThere are 2 versions of this paper

Date Written: October 1, 2005

Abstract

We investigate whether the market prices the change in net trading assets as an operating or non-operating activity or some mixture of the two, and whether this market pricing is consistent with the (fundamental) association of the change in net trading assets with future cash flows from operations (CFO). Our investigation is motivated by the observation that - despite the classification of the cash flows on trading positions as operating under FAS 102 - trading is economically a hybrid operating/non-operating activity. Reflecting this hybrid nature, we hypothesize and find that the change in net trading assets has a less positive association with returns and future CFO than do the pure operating components of cash flows and accruals, and that it has a more positive association with returns and future CFO than do the pure non-operating components of cash flows. To the best of our knowledge, our paper is the first to propose and test hypotheses about the valuation implications of such hybrid cash flows and accruals.

Keywords: Classification, cash flows, accruals, trading, banks

JEL Classification: G12, G14, G21, M41

Suggested Citation

Ryan, Stephen G. and Tucker, Jenny Wu and Zarowin, Paul, Classification and Market Pricing of the Cash Flows and Accruals on Trading Positions (October 1, 2005). The Accounting Review, 2006, Vol. 81 (2): 443-472. Available at SSRN: https://ssrn.com/abstract=741206 or http://dx.doi.org/10.2139/ssrn.741206

Stephen G. Ryan (Contact Author)

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street, Suite 10-73
New York, NY 10012-1118
United States
212-998-0020 (Phone)

Jenny Wu Tucker

University of Florida - Warrington College of Business Administration ( email )

Gainesville, FL 32611
United States
352-273-0214 (Phone)
352-392-7962 (Fax)

Paul Zarowin

New York University (NYU) - Department of Accounting ( email )

40 West 4th Street, Suite 400
422 Tisch Hall
New York, NY 10012-1118
United States
212-998-0015 (Phone)
212-995-4004 (Fax)

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