Equity Market Risk, Working Capital and Accruals Quality

Alexandra Dias; Silvia Pazzi

Equity Market Risk, Working Capital and Accruals Quality

The York Management School

Research output: Working paper

Abstract

The relation between market risk and fundamentals is not yet completely understood. We investigate the role of working capital ratio (WCR) in the evaluation of market risk measured by Value-at-Risk (VaR). We find a strong positive relation between WCR and VaR. We show that the positive sign of the relation between WCR and VaR is due to a low quality of the accruals component of the WCR. In addition, we find that the WCR gives a significant advantage to investors in estimating portfolio market risk especially during the crisis period.

Original language	English
Publication status	Unpublished - 31 Jan 2020

Keywords

working capital
information risk
risk management
Value-at-Risk
financial crises
accruals quality

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abstract = "The relation between market risk and fundamentals is not yet completely understood. We investigate the role of working capital ratio (WCR) in the evaluation of market risk measured by Value-at-Risk (VaR). We find a strong positive relation between WCR and VaR. We show that the positive sign of the relation between WCR and VaR is due to a low quality of the accruals component of the WCR. In addition, we find that the WCR gives a significant advantage to investors in estimating portfolio market risk especially during the crisis period. ",

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