50 Pages Posted: 28 Jun 2006 Last revised: 16 Nov 2011
Date Written: December 13, 2007
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.
Keywords: Asset pricing tests, Accruals quality, Information risk, Portfolio theory and diversification
JEL Classification: D80, G11, G12, M41
Suggested Citation: Suggested Citation
Core, John E. and Guay, Wayne R. and Verdi, Rodrigo S., Is Accruals Quality a Priced Risk Factor? (December 13, 2007). Available at SSRN: https://ssrn.com/abstract=911587 or http://dx.doi.org/10.2139/ssrn.911587