THE ASSOCIATION BETWEEN ACCOUNTING-BASED AND MARKET-BASED ESTIMATES OF SYSTEMATIC RISK UNDER ALTERNATIVE INCOME MEASUREMENT MODELS

The purpose of this empirical study is to examine the relationship that exists between an accounting-based estimate of systematic risk (accounting beta) and market beta, where accounting beta is determined using four income measurement models: the historical cost model (HC), the general price-level adjusted historical cost model (GPLAHC), the replacement cost model (RC) and the general price-level adjusted replacement cost model (GPLARC). Specifically, the objectives of the study are: (1) To identify changes in observed values of accounting beta attributable to the application of the four income measurement models of interest. (2) To evaluate the direction and significance of the cross-sectional association between market beta and accounting beta determined using these income models. (3) To determine whether the use of one or more of the income models demonstrates a closer association between accounting and market betas.