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

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.