Is Accruals Quality a Priced Risk Factor?
Posted: 23 Aug 2007 Last revised: 23 Jan 2012
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Is Accruals Quality a Priced Risk Factor?
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.
Keywords: Asset-pricing tests, Accruals quality, Information risk, Portfolio theory and diversification
JEL Classification: D80, G11, G12, M41, M43
Suggested Citation: Suggested Citation