Cashflow Risk, Systematic Earnings Revisions, and the Cross-Section of Stock Returns

The returns of stocks are partially driven by changes in their expected cashflow. Using revisions in analyst earnings forecasts, we construct an analyst earnings beta that measures the covariance between the cashflow innovations of an asset and those of the market. A higher analyst earnings beta imp...

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Main Authors: DA, Zhi, WARACHKA, Mitchell Craig
Format: text
Language:English
Published: Institutional Knowledge at Singapore Management University 2009
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Online Access:https://ink.library.smu.edu.sg/lkcsb_research/2967
https://doi.org/10.1016/j.jfineco.2008.12.008
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spelling sg-smu-ink.lkcsb_research-39662015-02-12T15:13:32Z Cashflow Risk, Systematic Earnings Revisions, and the Cross-Section of Stock Returns DA, Zhi WARACHKA, Mitchell Craig The returns of stocks are partially driven by changes in their expected cashflow. Using revisions in analyst earnings forecasts, we construct an analyst earnings beta that measures the covariance between the cashflow innovations of an asset and those of the market. A higher analyst earnings beta implies greater sensitivity to marketwide revisions in expected cashflow, and therefore higher systematic risk. Our analyst earnings beta captures exposure to macroeconomic fluctuations and has a positive risk premium that provides a partial explanation for the value premium, size premium, and long-term return reversals. From 1984 to 2005, 55.1% of the return variation across book-to-market, size, and long-term return reversal portfolios is captured by their analyst earnings betas. 2009-12-01T08:00:00Z text https://ink.library.smu.edu.sg/lkcsb_research/2967 info:doi/10.1016/j.jfineco.2008.12.008 https://doi.org/10.1016/j.jfineco.2008.12.008 Research Collection Lee Kong Chian School Of Business eng Institutional Knowledge at Singapore Management University Cashflow risk Analyst forecast revisions Corporate Finance Finance and Financial Management Portfolio and Security Analysis
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic Cashflow risk
Analyst forecast revisions
Corporate Finance
Finance and Financial Management
Portfolio and Security Analysis
spellingShingle Cashflow risk
Analyst forecast revisions
Corporate Finance
Finance and Financial Management
Portfolio and Security Analysis
DA, Zhi
WARACHKA, Mitchell Craig
Cashflow Risk, Systematic Earnings Revisions, and the Cross-Section of Stock Returns
description The returns of stocks are partially driven by changes in their expected cashflow. Using revisions in analyst earnings forecasts, we construct an analyst earnings beta that measures the covariance between the cashflow innovations of an asset and those of the market. A higher analyst earnings beta implies greater sensitivity to marketwide revisions in expected cashflow, and therefore higher systematic risk. Our analyst earnings beta captures exposure to macroeconomic fluctuations and has a positive risk premium that provides a partial explanation for the value premium, size premium, and long-term return reversals. From 1984 to 2005, 55.1% of the return variation across book-to-market, size, and long-term return reversal portfolios is captured by their analyst earnings betas.
format text
author DA, Zhi
WARACHKA, Mitchell Craig
author_facet DA, Zhi
WARACHKA, Mitchell Craig
author_sort DA, Zhi
title Cashflow Risk, Systematic Earnings Revisions, and the Cross-Section of Stock Returns
title_short Cashflow Risk, Systematic Earnings Revisions, and the Cross-Section of Stock Returns
title_full Cashflow Risk, Systematic Earnings Revisions, and the Cross-Section of Stock Returns
title_fullStr Cashflow Risk, Systematic Earnings Revisions, and the Cross-Section of Stock Returns
title_full_unstemmed Cashflow Risk, Systematic Earnings Revisions, and the Cross-Section of Stock Returns
title_sort cashflow risk, systematic earnings revisions, and the cross-section of stock returns
publisher Institutional Knowledge at Singapore Management University
publishDate 2009
url https://ink.library.smu.edu.sg/lkcsb_research/2967
https://doi.org/10.1016/j.jfineco.2008.12.008
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