Does cash flow predict returns?

Paresh Narayan () and Joakim Westerlund

International Review of Financial Analysis, 2014, vol. 35, issue C, 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.

Keywords: Cash flow volatility; Returns; Predictability; Panel data; Sectors (search for similar items in EconPapers)
JEL-codes: C12 C22 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:35:y:2014:i:c:p:230-236

DOI: 10.1016/j.irfa.2014.10.001

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