The Impact of the Negative Relation between Accounting Measures of Risk and Return on the Expected Market Return
Manuel Cano Rodríguez
Manuel Núñez Nickel
During the last few years, the importance of the research on Bowman's Paradox -the negative relationship between accounting measures of risk and return- has grown. Nevertheless, research has mostly been focused on studying the causes of the negative accounting relation, instead of explaining how, two different types of risk-return relationship can coexist: negative for the accounting indicators and positive for the market indicators. In this study, we develop a mathematical model, based on the Residual income Valuation Model for making both kinds of relations compatible. Our results show that there exists a positive relationship between the accounting measures of risk and the market measures of risk and return, but a negative influence of the accounting profitability on both market variables.
Bowman's Paradox, risk-return relationship, residual income valuation model
In order to set up a list of libraries that you have access to,
you must first login
or sign up.
Then set up a personal list of libraries from your profile page by
clicking on your user name at the top right of any screen.