Volatility and Risk-Relevance of Comprehensive Income

Abstract

In this paper, we investigate the volatility and risk-relevance of the standard deviation of two reported income measures; net income and comprehensive income for a sample of U.S non-financial firms over the period 2005-2010. We find that comprehensive income is more volatile than net income. We also find a positive correlation of the two income-volatility measures with volatility of stock returns and beta. Moreover, the incremental volatility of comprehensive income does not provide market-risk relevant information beyond net income. Further, the incremental effect of the volatility of comprehensive income is not priced beyond the volatility of net income. Alternatively, the incremental volatility of net income is priced beyond the volatility of comprehensive income. We use reported figures for all the components of other comprehensive income and comprehensive income. Our results support the claim that comprehensive income is more volatile than net income and may not be a better proxy for firm’s performance.