An accounting analysis of the risk‐return relationship in bull and bear markets

This study provides evidence that accounting beta (earnings and cash flow‐based) provides information consistent with the risk‐return relationship in up‐ and down‐markets. We are not able, however, to provide similar evidence using market beta. Considering that investors' ability to assess the risk‐return trade‐off in up‐ and down‐markets is central to efficient portfolio formation, the results suggest that accounting data can provide appropriate measures of portfolio upside and downside risk.