Advanced

Does Cash Flow Predict Returns?

Narayan, Paresh and Westerlund, Joakim LU (2014) In International Review of Financial Analysis 35. p.230-236
Abstract
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.
Please use this url to cite or link to this publication:
author
organization
publishing date
type
Contribution to journal
publication status
published
subject
in
International Review of Financial Analysis
volume
35
pages
230 - 236
publisher
North-Holland
external identifiers
  • scopus:84909632650
ISSN
1057-5219
DOI
10.1016/j.irfa.2014.10.001
language
English
LU publication?
yes
id
b4215a05-960f-4c18-a112-b572018ffdb3 (old id 4696596)
date added to LUP
2014-10-14 09:18:26
date last changed
2017-01-01 03:57:38
@article{b4215a05-960f-4c18-a112-b572018ffdb3,
  abstract     = {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.},
  author       = {Narayan, Paresh and Westerlund, Joakim},
  issn         = {1057-5219},
  language     = {eng},
  pages        = {230--236},
  publisher    = {North-Holland},
  series       = {International Review of Financial Analysis},
  title        = {Does Cash Flow Predict Returns?},
  url          = {http://dx.doi.org/10.1016/j.irfa.2014.10.001},
  volume       = {35},
  year         = {2014},
}