Market and Accounting Risk Factors of Asset Pricing in the Classical and Downside Approaches

Abstract

<p>Theoretical background: The variability of the company’s profitability is the result of the accompanying risk. To compare the profitability of many companies, relative profitability measures, which include profitability ratios, are more convenient. This article analyses market and accounting risk factors of CAPM. Risk was considered in variance and downside framework. Market betas, accounting betas were used in an extended version of the asset pricing model. Additionally, the influence of profitability ratios, such as ROA and ROE on the average rate of return on the capital market are considered.</p><p>Purpose of the article: The main purpose of this study is to test the standard and extended CAPM relations between systematic risk measures and mean returns for single companies quoted on the Polish capital market and equally-weighted portfolios in two approaches: variance and downside risk.</p><p>Research methods: The research based on individual securities and portfolios, compares the one-factor risk-return relationships with two-factor ones estimated using mean returns in cross-sectional regressions. The regressors were expressed in absolute terms and classical and downside beta coefficients. The sample includes companies differing in terms of size and across different industries.</p><p>Main findings: Portfolios with higher classical or downside market betas generate higher mean returns. The negative risk premium for accounting betas for variance and downside risk was identified. It is not in accordance with our earlier study of the Polish construction sector, where a positive and significant risk premium for downside accounting betas was found. The highest explanatory power of rates on returns on the Polish capital market were found for average ROA and ROE. This confirms the results of the previous studies on the Polish capital market for food and construction sectors.</p>

The Essence of Relationships between the Crude Oil Market and Foreign Currencies Market Based on a Study of Key Currencies

“…These effects can also be linked to the propensity of financial market players to take investment risks [52,53]. As the aversion to risk rises, the response of the currency exchange rate is more spread over time, while the response to the capital flow to emerging markets takes less time [54]. This is consistent with conclusions from other studies, indicating that sentiment and uncertainty have a significant effect on oil prices and their fluctuations, and the strength of impact these two factors produce is greater after the outbreak of a global financial crisis [55][56][57][58].…”

Analytical Methods to Assess Financial Capacity in Face of Innovation Projects Risks

“…It can be assumed that the use of the method of assessing financial capacity by constructing a four-year settlement balance, in particular the risks of additional costs that are taken into account in the budgeting process, can be used to verify the list of the main economic indicators of the company considered by Rutkowska-Ziarko and Markowski (2020). Some theoretical points proposed by Gutsalenko and Marchuk (2020) can supplement the list of theses that are prerequisites for using the methodology for assessing the financial capacity of an innovative project proposed by the authors.…”

“…An additional proof of the presence of indirect nonstandard risks associated with an unstable external environment is the statement about the high rate of change in the business environment, mentioned in Hock-Doepgen et al (2021). In addition, the research results presented in the publications of Babenko et al (2018), Rutkowska-Ziarko and Markowski (2020), Gutsalenko and Marchuk (2020), Yau-Yeung et al (2020), Domnin and Martynenko (2019), Drakeman and Oraiopoulos (2020) and Hartwig and Mathews (2020) are analyzed below.…”