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Cash flow news, discount rate news, and momentum

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  • Celiker, Umut
  • Kayacetin, Nuri Volkan
  • Kumar, Raman
  • Sonaer, Gokhan

Abstract

We examine the effect of aggregate cash flow news and discount rate news on momentum returns. We find that momentum profits are higher following aggregate positive cash flow news, even in down markets or low sentiment periods. This finding expands on the evidence in Cooper et al. (2004) that momentum is significant only when past market returns are non-negative and in Antoniou et al. (2013) that momentum is weaker when sentiment is pessimistic. We find that the higher momentum profits during aggregate positive cash flow news periods are primarily driven by the losers continuing to underperform in subsequent periods. Our findings are consistent with the Hong and Stein (1999) model in the sense that gradual diffusion of contradictory news is accentuated when change in wealth is positive and relatively more permanent.

Suggested Citation

  • Celiker, Umut & Kayacetin, Nuri Volkan & Kumar, Raman & Sonaer, Gokhan, 2016. "Cash flow news, discount rate news, and momentum," Journal of Banking & Finance, Elsevier, vol. 72(C), pages 240-254.
    • Handle: RePEc:eee:jbfina:v:72:y:2016:i:c:p:240-254
    DOI: 10.1016/j.jbankfin.2016.07.016
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    References listed on IDEAS

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    Cited by:

    1. Doina Chichernea & Collin Gilstrap & Kershen Huang & Alex Petkevich, 2019. "Who Reacts to News?," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 9(01), pages 1-43, March.
    2. Benjamin A. Jansen, 2020. "Cash Flow Growth and Stock Return," Working Papers 202004, Middle Tennessee State University, Department of Economics and Finance.
    3. Garcia-Feijoo, Luis & Jensen, Gerald R. & Jensen, Tyler K., 2018. "Momentum and funding conditions," Journal of Banking & Finance, Elsevier, vol. 88(C), pages 312-329.
    4. El Hachloufi Mostafa & Ezouine Driss & El Haddad Mohammed, 2018. "Interaction between the VaR of cash flow and the interest rate using the ALM," Journal of Statistical and Econometric Methods, SCIENPRESS Ltd, vol. 7(1), pages 1-4.
    5. Kausar, Rabia & Qayyum, Abdul, 2018. "How Cash Flow News and Discount Rate News Impact the Unexpected Stock Returns of Energy Firms of Pakistan," MPRA Paper 91165, University Library of Munich, Germany.

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    More about this item

    Keywords

    Momentum; Cash flow news; Asset pricing; Market efficiency;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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