Understanding the Cash Flow-Fundamental Ratio

Chyi-Lun Chiou
Additional contact information
Chyi-Lun Chiou: Department of Business Administration, Fu Jen Catholic University, No. 510, Zhongzheng Rd., Xinzhuang Dist., New Taipei City, 24205, Taiwan, R.O.C.

International Journal of Economics and Financial Issues, 2015, vol. 5, issue 1, 148-157

Abstract: This article investigates the use of cash flow-fundamental ratio in forecasting stock market return and examines implications behind this ratio. By presuming the dynamics of cash flow-fundamental ratio I identify the relationship between economic uncertainty and risk premium. The evidence shows that cash flow-fundamental ratio is procyclical and is a predictor of cash flow growth and excess returns. The cash flow-fundamental ratio is proved to be negatively associated with risk premium. I also examine that the mean-reversion property of cash flow-fundamental ratio is triggered by profitability. In contrast to the assumption of stationary in stock price, mean reversion in profitability is more reasonable and has been proved by Fama and French (2000).

Keywords: Predictability of stock return; Cash flow-fundamental ratio. (search for similar items in EconPapers)
JEL-codes: G12 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.econjournals.com/index.php/ijefi/article/view/985/pdf (application/pdf)
http://www.econjournals.com/index.php/ijefi/article/download/985/pdf (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eco:journ1:2015-01-12

Access Statistics for this article

International Journal of Economics and Financial Issues is currently edited by Ilhan Ozturk

More articles in International Journal of Economics and Financial Issues from Econjournals
Bibliographic data for series maintained by Ilhan Ozturk ().