Abstract
Using a new variable based on a model of dividend smoothing, we find that dividend growth is highly predictable and that cash flow news contributes importantly to return variability. Cash flow betas derived from this predictability are central to explaining the size effect in the cross section of returns. However, they do not explain the value effect; this is explained by noise betas. We also find that the relative importance of cash flow news in explaining recent stock price run-ups and subsequent declines increases when cash flow news is estimated directly. © 2012 Michael G. Foster School of Business, University of Washington.
| Original language | English |
|---|---|
| Pages (from-to) | 1003-1028 |
| Number of pages | 25 |
| Journal | Journal of Financial and Quantitative Analysis |
| Volume | 47 |
| Issue number | 5 |
| DOIs | |
| Publication status | Published - Oct 2012 |
Keywords
- dividend growth; cash flow news; discount rate news; cash flow beta; discount rate beta