Studying the Impact of Accruals Quality and Market Risk Premium on Stock return Excess Using Fama-French Three Factor Model

Shima Khajeh Shalaei

doi:10.5539/jpl.v10n2p114

Abstract

Determining effective agents in stock return excess behavior (stock risk premium) is one of the key points in investors decision that its benefit and quality of its elements (like accruals) are the impressive factors on stock return excess (stock risk premium) which influence users decision making. Accruals are temporary adjustments that postpone fulfilled cash flows recognition and estimate error degree. Criteria estimating to study these items quality seem necessary because of affecting over future cash flows. Therefore the current study aims to investigate the effect of accruals quality and market risk premium on stock return excess. In order to examine probe hypothesis, we used Fama-French three-factor model that accruals were added to it. For this aim a sample that includes 88 of accepted companies in Tehran stock exchange between 2005 until 2013 was studied. In order to calculate accruals, we used Dechow et al model (1995) utilizing sectional data and to estimate we used Fama-French model (1993) by multivariable regression method and time series data. This study in nature is collateral and in goal is fundamental-experimental. The conclusions show that between accruals quality factors and stock risk premium there is a negative significant relation and between market and stock risk premium there is a positive significant relation. Moreover, the results indicate that among size agent and stock risk premium also between book value to market value ratio factors and stock risk premium there is a negative significant link.

Highlights

Accounting income and related elements are part of information considered in the decision-making of individuals
If variance inflation factor test (VIF) statistics of variables is lower than 10, linearity problem would not exist between independent variables
The significance of ratio of AQF at the significance level 95% indicates a significant impact of AQF on stock risk premium

Summary

Introduction

Accounting income and related elements are part of information considered in the decision-making of individuals. Incomes and costs identification are not necessarily along with receipt and payment of cash fund and in benefit computation predictions and estimations are used, this question rises that up to what point we can rely on this digit in time of investing decision making. Response to this question finds importance form the point that wrong decision because of inaccurate or insufficient causes unfair source division (Kordestani, 2013). Accruals role because of its influence in earning is clearly explicit (Hendrickson & Breda, 2005)

Methods

Results

Conclusion