Download or read book Predictability of Returns and Cash Flows written by Ralph S. J. Koijen and published by . This book was released on 2010 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: We review the literature on return and cash flow growth predictability form the perspective of the present-value identity. We focus predominantly on recent work. Our emphasis is on U.S. aggregate stock return predictability, but we also discuss evidence from other asset classes and countries

Download or read book Informativeness and Predictability of Earnings and Cash Flows written by Zhemin Wang and published by . This book was released on 1991 with total page 236 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Four Centuries of Return Predictability written by Benjamin Golez and published by . This book was released on 2014 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze four centuries of stock prices and dividends in the Dutch, English, and U.S. market. With the exception of the post-1945 period, the dividend-to-price ratio is stationary and predicts returns throughout all four centuries. "Excess volatility" is thus a pervasive feature of financial markets. The dividend-to-price ratio also predicts dividend growth rates in all but the most recent period. Cash-flows were therefore much more important for price movements before 1945, and the dominance of discount rate news is a relatively recent phenomenon. This is consistent with the increased duration of the stock market in the recent period.

Download or read book Are Dividends and Stock Returns Predictable New Evidence Using M A Cash Flows written by Riccardo Sabbatucci and published by . This book was released on 2015 with total page 59 pages. Available in PDF, EPUB and Kindle. Book excerpt: Aggregate dividend growth is widely thought to be unpredictable by the dividend price ratio. I show that this lack of predictability is related to the measurement of dividends. If M&A cash flows are taken into account, the adjusted R2 from a regression of dividend growth on the dividend price ratio goes from being negative (-1.18%) to being positive (17.54%) and coefficients become highly statistically significant. Strong improvements are also found for consumption growth (2.10% to 11.76%) and returns (1.86% to 4.40%). Out-of-sample R2 for dividend growth and returns are large and statistically significant. I also show that dividend price variation is fundamentally linked to cash flows news and not only to discount rate news. Lastly, I find stronger predictability in industries with the largest M&A activity.

Download or read book Stock Return and Cash Flow Predictability written by Tim Bollerslev and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Stock Returns Predictability and the Role of Monetary Policy written by Alex D. Patelis and published by . This book was released on 1998 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines whether shifts in the stance of monetary policy can account for the observed predictability in excess stock returns. Using long-horizon regressions and short-horizon vector auto-regressions, the paper concludes that monetary policy variables are significant predictors of future returns, though they cannot fully account for observed stock return predictability. I undertake variance decompositions to investigate how monetary policy affects the individual components of excess returns (risk-free discount rates, risk premia, or cash flows).

Download or read book What Drives Market Return Predictability written by Quan Wen and published by . This book was released on 2013 with total page 39 pages. Available in PDF, EPUB and Kindle. Book excerpt: Market return predictability may be driven by time varying discount rates or changing beliefs of cash flow. We use analyst earnings forecast to separate cash flow and discount rate components of returns and distinguish the source of return predictability by a set of predictive variables commonly used in the literature. The overall evidence is consistent with the idea that the predictive variables capture time varying discount rates. Some variables also predict cash flow component of returns, implying that these predictive variables may capture investors' biases in projecting aggregate future cash flows.

Download or read book Cash Flow News and the Investment Effect in the Cross Section of Stock Returns written by Mike Qinghao Mao and published by . This book was released on 2015 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study provides novel evidence that cash flow news quantitatively explains the investment effect in the cross-section of stock returns. The negative return predictability of asset growth, investment growth, and accruals is evident only through the cash flow news component of returns. The cash flow news returns associated with investment-sorted portfolios exhibit a reversal from the pre-formation period to the post-formation period. Such a return reversal is in line with reversals in firm fundamentals and becomes stronger for stocks with higher information uncertainty. Our findings are consistent with the expectational errors hypothesis and fail to support the risk-based explanation for the investment effect.

Download or read book Time Varying Predictability for Stock Returns Dividend Growth and Consumption Growth written by David G. McMillan and published by . This book was released on 2014 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using a state-space model, this paper examines time-variation in the predictive regressions for stock returns, dividend growth and consumption growth. Moreover, we linked time-variation explicitly to movements in economic factors that can account for risk and cash flow. Results support the view that stock return predictability is enhanced when risk is high (negative growth, higher volatility and positive growth/return covariance). In contrast, dividend growth and consumption growth predictability is enhanced during economic expansions. These results are supported by sub-sample analysis and a VAR approach. Furthermore, these latter exercises may uncover differences in the stock return predictability relationship when viewed over different time horizons. Overall, the paper contributes to the literature by highlighting the different nature of returns predictability, which arises largely through the risk channel and dividend and consumption growth predictability, which arise through the cash flow channel.

Download or read book Portfolio Selection and Asset Pricing written by Shouyang Wang and published by Springer Science & Business Media. This book was released on 2012-12-06 with total page 260 pages. Available in PDF, EPUB and Kindle. Book excerpt: In our daily life, almost every family owns a portfolio of assets. This portfolio could contain real assets such as a car, or a house, as well as financial assets such as stocks, bonds or futures. Portfolio theory deals with how to form a satisfied portfolio among an enormous number of assets. Originally proposed by H. Markowtiz in 1952, the mean-variance methodology for portfolio optimization has been central to the research activities in this area and has served as a basis for the development of modem financial theory during the past four decades. Follow-on work with this approach has born much fruit for this field of study. Among all those research fruits, the most important is the capital asset pricing model (CAPM) proposed by Sharpe in 1964. This model greatly simplifies the input for portfolio selection and makes the mean-variance methodology into a practical application. Consequently, lots of models were proposed to price the capital assets. In this book, some of the most important progresses in portfolio theory are surveyed and a few new models for portfolio selection are presented. Models for asset pricing are illustrated and the empirical tests of CAPM for China's stock markets are made. The first chapter surveys ideas and principles of modeling the investment decision process of economic agents. It starts with the Markowitz criteria of formulating return and risk as mean and variance and then looks into other related criteria which are based on probability assumptions on future prices of securities.

Download or read book Predicting Stock Returns written by David G McMillan and published by Springer. This book was released on 2017-11-30 with total page 141 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book provides a comprehensive analysis of asset price movement. It examines different aspects of stock return predictability, the interaction between stock return and dividend growth predictability, the relationship between stocks and bonds, and the resulting implications for asset price movement. By contributing to our understanding of the factors that cause price movement, this book will be of benefit to researchers, practitioners and policy makers alike.

Download or read book Cash Flow and Risk Premium Dynamics in an Equilibrium Asset pricing Model with Recursive Preferences written by Taeyoung Doh and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on the Predictability and Volatility of Returns in the Stock Market written by Ruojun Wu and published by . This book was released on 2008 with total page 137 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation studies the effect of parameter uncertainty on the return predictability and volatility of the stock market. The first two chapters focus on the decomposition of market volatility, and the third chapter studies the return predictability. When facing imperfect information, the investors tend to form a learning scheme that encompasses both historical data and prior beliefs. In the variance decomposition framework, the introducing of learning directly impacts the way that return forecasts are revised and consequently the relative component of market volatility based on these forecasts, namely the price movements from revision on future discount rates and those from future cash flows. According to the empirical study in Chapter 1, the former is not necessarily the major driving force of market volatility, which provides an alternative view on what moves stock prices. Learning is modeled and estimated by Bayesian method. Chapter 2 follows the topic in Chapter 1 and studies the role of persistent state variables in return decomposition in order to provide more robust inference on variance decomposition. In Chapter 3 we propose to utilize theoretical constraints to help predict market returns when in sample data is very noisy and creates model uncertainty for the investors. The constraints are also incorporated by Bayesian method. We show in the out-of-sample forecast experiment that models with theoretical constraints produce better forecasts.

Download or read book Dividend Changes and Signaling of Future Cash Flows written by Amy Chun-Chia Chang and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We present fresh evidence on the validity of the dividend signaling hypothesis (DSH), by using a new testing approach. We test the unambiguous prediction from the DSH that the association between current dividend changes and future profitability is stronger for firms with higher marginal net benefits from signaling. Using a simple dividend signaling model, we derive three empirically identifiable drivers of the marginal net benefit of signaling: cash flow predictability, market-to-book, and past equity returns. Our empirical tests support the DSH. There is a significant association between current dividend changes and future earnings performance for firms with low cash flow predictability, low market-to-book ratio, and low past equity returns. But, as predicted by the DSH, the association is much weaker for firms with high cash flow predictability, high book-to-market, and high past equity returns. There is also evidence that the marginal signaling benefits at the firm-level are influenced by aggregate factors: the information content of dividend changes is time-varying, increasing (decreasing) in booms (recessions) and in periods of high (low) aggregate stock market performance.

Download or read book Stock Return Dividend Growth and Consumption Growth Predictability Across Markets and Time written by David G. McMillan and published by . This book was released on 2014 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper links variation in the predictive regressions for stock returns, dividend growth and consumption growth to economic and market factors. The nature of these links can reveal whether movement in asset prices occurs primarily through the discount rate (risk-free rate or risk premium) or cash flow (economic conditions) channel, while they also help explain the mixed results for predictability reported in the literature. Variation is examined through cross-sectional regressions across fifteen markets and over time using rolling regressions. The cross-sectional and time-varying parameters are regressed against output growth, interest rates and inflation as well as market variables using fixed effects panel as well as both OLS and logit approaches. Panel and time-series predictive regressions based on two approaches that seek to identify periods of high expected returns (high risk premium) are also considered. The key implication for asset pricing is that although movement occurs through both channels, stock return predictability is more dominated by the discount rate channel and consumption growth predictability more so by the cash flow channel. Intuitively, such a difference may arise as investors and households rebalance their asset holdings and consumption at different speeds. There is also some evidence of money illusion through the inflation variable.

Download or read book Dividend Smoothing and Predictability written by Long Chen and published by . This book was released on 2011 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: The relative predictability of returns and dividends is a central issue since it forms the paradigm to interpret asset price variation. A little studied question is how dividend smoothing, as a choice of corporate policy, affects predictability. We show that, even if dividends are supposed to be predictable without smoothing, dividend smoothing can bury this predictability in a finite sample. We further show that aggregate dividends are dramatically more smoothed in the postwar period than before. Therefore, the lack of dividend growth predictability in the postwar period, as widely documented in the literature, does not necessarily mean that there is no cash flow news in stock price variations; rather, a more plausible interpretation is that dividends are smoothed. Using two alternative measures that are less subject to dividend smoothing -- net payout and earnings -- we reach the consistent conclusion that cash flow news plays a more important role than discount rate news in price variations in the postwar period. Our take-away messages are that (i) dividend smoothing can severely affect dividend predictability in a finite sample, (ii) there is significant cash flow news in stock price variations, and (iii) when smoothed, dividends do not represent well the outlook of future cash flows.

Download or read book Asset Pricing Theory written by Costis Skiadas and published by Princeton University Press. This book was released on 2009-02-09 with total page 363 pages. Available in PDF, EPUB and Kindle. Book excerpt: Asset Pricing Theory is an advanced textbook for doctoral students and researchers that offers a modern introduction to the theoretical and methodological foundations of competitive asset pricing. Costis Skiadas develops in depth the fundamentals of arbitrage pricing, mean-variance analysis, equilibrium pricing, and optimal consumption/portfolio choice in discrete settings, but with emphasis on geometric and martingale methods that facilitate an effortless transition to the more advanced continuous-time theory. Among the book's many innovations are its use of recursive utility as the benchmark representation of dynamic preferences, and an associated theory of equilibrium pricing and optimal portfolio choice that goes beyond the existing literature. Asset Pricing Theory is complete with extensive exercises at the end of every chapter and comprehensive mathematical appendixes, making this book a self-contained resource for graduate students and academic researchers, as well as mathematically sophisticated practitioners seeking a deeper understanding of concepts and methods on which practical models are built. Covers in depth the modern theoretical foundations of competitive asset pricing and consumption/portfolio choice Uses recursive utility as the benchmark preference representation in dynamic settings Sets the foundations for advanced modeling using geometric arguments and martingale methodology Features self-contained mathematical appendixes Includes extensive end-of-chapter exercises