Classification and Market Pricing of the Cash Flows and Accruals on Trading Positions

Abstract

Despite the classification of the cash flows on trading positions as operating under SFAS No. 102, trading is economically a hybrid operating/non‐operating activity. Reflecting this hybrid nature, we hypothesize and find that the change in net trading assets has a less positive association with returns and future CFO than do the pure operating components of cash flows and accruals, and it has a more positive association with returns and future CFO than do the pure non‐operating components of cash flows. Our paper is the first to propose and test hypotheses about the valuation implications of such hybrid cash flows and accruals.