Cash Flow Risk and Discount Rate Risk of Aggregate Stock Returns

2006 ◽  
Author(s):  
Long Chen
Keyword(s):  
Stock Returns ◽  
Cash Flow ◽  
Discount Rate ◽  
Rate Risk ◽  
Cash Flow Risk

scholarly journals Cash Flow and Discount Rate Risk in Up and Down Markets: What Is Actually Priced?

2012 ◽  
Vol 47 (6) ◽  
pp. 1279-1301 ◽  
Author(s):  
Mahmoud Botshekan ◽  
Roman Kraeussl ◽  
Andre Lucas
Keyword(s):  
Cash Flow ◽  
Discount Rate ◽  
Predictive Ability ◽  
Decomposition Methods ◽  
Return Decomposition ◽  
Rate Risk ◽  
Related Risk ◽  
Out Of Sample ◽  
Asymmetric Preferences ◽  
Cash Flow Risk

AbstractWe test whether asymmetric preferences for losses versus gains affect the prices of cash flow versus discount rate risk. We construct a return decomposition distinguishing cash flow and discount rate betas in up and down markets. Using U.S. data, we find that downside cash flow and discount rate betas carry the largest premia. Downside cash flow risk is priced consistently across different samples, periods, and return decomposition methods. It is the only component of beta with significant out-of-sample predictive ability. Downside cash flow premia mainly occur for small stocks, while large stocks are compensated for symmetric cash-flow-related risk.

An Analysis of the Sources of Value Loss Following Financial Restatements

2021 ◽  
pp. 0148558X2198991
Author(s):  
Philip K. Hong ◽  
Jaywon Lee ◽  
Sang-Hyun Park ◽  
Sukesh Patro
Keyword(s):  
Stock Returns ◽  
Cash Flow ◽  
Discount Rate ◽  
Stock Price ◽  
Cash Flows ◽  
Financial Fraud ◽  
Earnings Persistence ◽  
Flow Component ◽  
Financial Restatements ◽  
Value Loss

We decompose the total value loss around firms’ announcements of financial restatements into components arising from investors’ revisions in cash flows and discount rates. First, relative to population benchmarks, restatements represent circumstances in which the cash flow component becomes more important in explaining valuations. While we find significant contributions from both sources, with the cash flow component explaining more than 33% of the variation in stock returns surrounding restatement announcements, this component explains only 13% to 22% in comparable non-restating firms. When restatements are caused by underlying financial fraud, the discount rate impact becomes more important, explaining about 88% of return variation. On the contrary, the cash flow impact is relatively larger for firms with higher earnings persistence or restatements associated with errors. Our decomposition of the value loss helps explain returns in the post-announcement period. Firms with a higher relative discount rate impact experience a significant downward stock price drift after the initial announcement-related price decline. For firms with a higher relative cash flow impact, the evidence suggests the initial impact of the restatement announcement is more complete with no subsequent drift pattern. Our findings close gaps in the evidence on financial restatements and extend the literature on the drivers of stock price movements.

Cash Flow and Discount Rate Risk in the Investment Effect: A Downside Risk Approach

2018 ◽  
Vol 08 (03) ◽  
pp. 1850002
Author(s):  
Ehab Yamani ◽  
David Rakowski
Keyword(s):  
Cash Flow ◽  
Discount Rate ◽  
Systematic Risk ◽  
Downside Risk ◽  
Expected Returns ◽  
Financing Constraints ◽  
Rate Risk ◽  
Market State ◽  
Risk Approach ◽  
High Investment

We examine whether sensitivities to cash flow and discount rate risk in down markets explain the investment effect, in which low-investment stocks earn higher expected returns than high-investment stocks. We show how productivity and financing constraints asymmetrically impact the systematic risk of low-investment and high-investment firms, conditional on market state. Our evidence is consistent with both productivity constraints and financing constraints as explanations for the investment effect, but, contrary to expectations, more when prices are rising than falling.

scholarly journals Including Cash Flow Risk In Stock Return Analysis

2010 ◽  
Vol 8 (1) ◽  
Author(s):  
Janet West ◽  
Judy Laux
Keyword(s):  
Stock Returns ◽  
Cash Flow ◽  
Explanatory Power ◽  
Ordinary Least Squares ◽  
Theory And Practice ◽  
Capital Asset Pricing ◽  
Least Squares Regression ◽  
Font Size ◽  
Asset Pricing Model ◽  
Cash Flow Risk

<p class="MsoBlockText" style="text-align: justify; margin: 0in 0.5in 0pt; mso-pagination: none;"><span style="font-style: normal; color: black; mso-bidi-font-style: italic; mso-bidi-font-size: 10.0pt;"><span style="font-size: x-small;"><span style="font-family: Times New Roman;">Despite their prominence in financial theory and practice, the Capital Asset Pricing Model and its critical beta component have failed test after test to explain stock returns.<span style="mso-spacerun: yes;">&nbsp; </span>Research by Campbell and Vuolteenaho cites the misspecification of beta as the reason for this failure.<span style="mso-spacerun: yes;">&nbsp; </span>They measure beta as the sum of two components: a more influential &ldquo;cash-flow&rdquo; beta and a secondary &ldquo;discount-rate&rdquo; beta.<span style="mso-spacerun: yes;">&nbsp; </span>The current study creates a ratio between the overall beta of a stock and the cash-flow component and uses an ordinary least squares regression model to determine its significance in interpreting overall returns to a stock, hypothesizing that the ratio will better explain returns than the overall beta alone.<span style="mso-spacerun: yes;">&nbsp; </span>The results are mixed but suggest significant explanatory power for the beta range of 0.60 to 0.95.</span></span></span></p>

ANALISIS EKSPOSUR EKONOMI DAN FAKTOR-FAKTOR YANG MEMPENGARUHINYA PADA PERUSAHAAN ROKOK YANG TERCATAT DI BEI

Wahana ◽  
2019 ◽  
Vol 21 (2) ◽  
pp. 98-109
Author(s):  
Ida Musdafia Ibrahim ◽  
Arif Haryono
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Cash Flow ◽  
Firm Value ◽  
Tobacco Industry ◽  
Cash Flows ◽  
Least Square ◽  
Exchange Rate Risk ◽  
Positive Effects ◽  
Rate Risk

This study aims to analyze economic exposures and its factors namely exchange rates and inflation, that influence firm value as reflected through firm cash flow. Analytical method used Ordinary Least Square and eviews as analytical tool. This study used secondary data and cigarette industry companies listed on the Indonesia Stock Exchange as samples along 2008 to 2017. Samples choosing method used purposive sampling based on determined criterias. The results showed that partially economic exposure had positive effects on firm value but insignificant. These could be seen from the economic exposure factors influncenced namely exchange rates and inflations.The exchange rate risk has low influenced cash flow was caused of the tobacco industry has low level of export/import.Enhance,inflation also had low effect on cash flow was caused of the tendency of cigarette consumers will continue to buy cigarettes even though its price increases. In short, economic exposure in the tobacco industry has low influence toward firms value. Hence, simultaneously changes in exchange rates and inflation which are economic exposure indicators have a significant effect on cash flows.  Keywords: Economic Exposure, Exchange Rate Risk, Inflation Risk, Firms Value, Cash Flow

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