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Does Cash Flow Predict Returns?

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Author

Summary, in English

In this paper, we propose the hypothesis that cash flow and cash flow volatility predict returns. We categorize firms listed on the New York Stock Exchange into sectors, and apply tests for both in-sample and out-of-sample predictability. While we find strong evidence that cash flow volatility predicts returns for all sectors, the evidence obtained when using cash flow as a predictor is relatively weak. Estimated profits and utility gains also suggest that it is cash flow volatility that is more relevant as a source of information than cash flow.

Publishing year

2014

Language

English

Pages

230-236

Publication/Series

International Review of Financial Analysis

Volume

35

Document type

Journal article

Publisher

North-Holland

Topic

  • Economics

Status

Published

ISBN/ISSN/Other

  • ISSN: 1057-5219