Using accounting earnings and aggregate economic indicators to estimate firm-level systematic risk

• 成果类型: Article
• 署名作者: Ball, Ray; Sadka, Gil; Tseng, Ayung
• 署名单位: University of Chicago; University of Texas System; University of Texas Dallas; Indiana University System; Indiana University Bloomington
• 刊物名称: REVIEW OF ACCOUNTING STUDIES
• ISSN/ISSBN: 1380-6653
• DOI: 10.1007/s11142-021-09594-9
• 发表日期: 2022
• 页码: 607-646
• 关键词: cross-section; empirical-evaluation; information-content; INVESTMENT; returns; determinants; GROWTH; stocks; equilibrium; association

摘要

We revisit the literature on using accounting earnings to estimate firm-level systematic risk, using macroeconomic indicators rather than listed-firm indexes to measure aggregate risk. Conventional listed-firm indexes reflect an unrepresentative subset of aggregate assets and thus are expected to substantially mismeasure aggregate and systematic risk (J Financ Econ 4, 129-176, Roll 1977). That choice dictates using earnings rather than returns to measure firm-level outcomes. Earnings and macroeconomic indicators both are primarily realized annual outcomes and thus are better aligned in time than forward-looking returns for capturing the contemporaneous co-movements that underlie systematic risk. Our macroeconomic indicators are chosen to reflect shocks to aggregate supply and demand, providing a parsimonious model that incorporates the two fundamental determinants of aggregate risk. We find that firms' earnings-based sensitivities (betas) to aggregate supply and demand shocks are negatively correlated and explain the cross-section of returns better than conventional index betas. The earnings-based sensitivities are correlated with firm characteristics employed in empirical asset pricing models and explain one quarter of the explanatory power of those characteristics.