Operating profitability and accruals are well-known fundamental factors which can explain cross-section of stock returns. However, there is no prior research in Thai stock market which tests whether there is the offsetting between these two impacts on return at the same time. For our study, we apply the study from Ball, Gerakos, Linnainmaa and Nikolaev (2016) and show that in Thai stock market, there is no absolute offset between the positive impact of operating profitability and negative impact of accruals on stock return which means an increase in operating profitability derived mainly from accruals still has positive relation with cross-section of stock returns. Also, we find that cash-based operating profitability (Operating profitability exclude accruals) has significantly positive relation with cross-section of stock returns but operating profitability is still the better factor to explain the stock return. Further, an investor can create return, excess return and CAPM alpha from conducting long-short strategy from portfolio sorted by accruals and can create CAPM alpha from applying the strategy with portfolio sorted by operating profitability.
Accrual, cash flows, and operating profitability in the cross section of stock returns: The Evidence of Stock Exchange of Thailand
Post by MSF Chula at Monday, 18 September 2017 04:39 PM
Last updated at Monday, 18 September 2017 04:39 PM