Cash Flow News and Stock Price Dynamics
DAVIDE PETTENUZZO
Search for more papers by this authorRICCARDO SABBATUCCI
Search for more papers by this authorCorresponding Author
ALLAN TIMMERMANN
Davide Pettenuzzo is at International Business School, Brandeis University. Riccardo Sabbatucci is at Department of Finance, Stockholm School of Economics. Allan Timmermann is at Rady School of Management, UC San Diego. We are grateful to the editor, Stefan Nagel, an Associate Editor, and two anonymous referees for many valuable suggestions on our paper. We also received helpful comments from Jules van Binsbergen, Chris Polk, Federico Bandi, and participants at the Utah Winter Finance Conference 2019, CEPR Gerzensee 2018, BI-SHoF 2018, and conferences in Toronto (Western University, April 2018), Toulouse (Toulouse School of Economics, May 2018), and University of Chicago (May 2019). We are grateful to INQUIRE Europe for financial support. We have read The Journal of Finance disclosure policy and have no conflicts of interest to disclose.
Correspondence: Allan Timmermann, University of California, San Diego, Rady School of Management, 4S146 Otterson Hall, MC 0553, 9500 Gilman Drive, La Jolla, CA 92093-0553; e-mail: atimmerm@ucsd.edu
Search for more papers by this authorDAVIDE PETTENUZZO
Search for more papers by this authorRICCARDO SABBATUCCI
Search for more papers by this authorCorresponding Author
ALLAN TIMMERMANN
Davide Pettenuzzo is at International Business School, Brandeis University. Riccardo Sabbatucci is at Department of Finance, Stockholm School of Economics. Allan Timmermann is at Rady School of Management, UC San Diego. We are grateful to the editor, Stefan Nagel, an Associate Editor, and two anonymous referees for many valuable suggestions on our paper. We also received helpful comments from Jules van Binsbergen, Chris Polk, Federico Bandi, and participants at the Utah Winter Finance Conference 2019, CEPR Gerzensee 2018, BI-SHoF 2018, and conferences in Toronto (Western University, April 2018), Toulouse (Toulouse School of Economics, May 2018), and University of Chicago (May 2019). We are grateful to INQUIRE Europe for financial support. We have read The Journal of Finance disclosure policy and have no conflicts of interest to disclose.
Correspondence: Allan Timmermann, University of California, San Diego, Rady School of Management, 4S146 Otterson Hall, MC 0553, 9500 Gilman Drive, La Jolla, CA 92093-0553; e-mail: atimmerm@ucsd.edu
Search for more papers by this authorABSTRACT
We develop a new approach to modeling dynamics in cash flows extracted from daily firm-level dividend announcements. We decompose daily cash flow news into a persistent component, jumps, and temporary shocks. Empirically, we find that the persistent cash flow component is a highly significant predictor of future growth in dividends and consumption. Using a log-linearized present value model, we show that news about the persistent dividend growth component predicts stock returns consistent with asset pricing constraints implied by this model. News about the daily dividend growth process also helps explain concurrent return volatility and the probability of jumps in stock returns.
Supporting Information
| Filename | Description |
|---|---|
| jofi12901-sup-0001-OnlineAppendix.pdf1.1 MB |
Appendix S1: Internet Appendix. |
| jofi12901-sup-0002-ReplicationCode.zip22.8 MB |
Replication code. |
Please note: The publisher is not responsible for the content or functionality of any supporting information supplied by the authors. Any queries (other than missing content) should be directed to the corresponding author for the article.
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