Cash Flow News and Stock Price Dynamics

Allan Timmermann, Davide Pettenuzzo () and Riccardo Sabbatucci

No 14117, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We develop a new approach to modeling dynamics in cash flow data extracted from daily firm-level dividend announcements. We decompose daily cash flow news into a persistent component, jumps, and temporary shocks. Empirically, we find that the persistent cash flow component is a highly significant predictor of future growth in dividends and consumption. Using a log-linearized present value model, we show that news about the persistent dividend growth component helps predict stock returns consistent with asset-pricing constraints implied by this model. News about the daily dividend growth process also helps explain concurrent return volatility and the probability of jumps in stock returns.

Keywords: High-frequency cash flow news; Dividend growth; Present value model (search for similar items in EconPapers)
Date: 2019-11
New Economics Papers: this item is included in nep-mst
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Journal Article: Cash Flow News and Stock Price Dynamics (2020)
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