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Does sensitivity to cashflow news explain the value premium on European stock markets?

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  • Nitschka, Thomas

Abstract

The decomposition of a European market return into cashflow and discount rate news components suggests that returns on European and country value portfolios react more sensitive to news about the European market return´s cashflows than the corresponding growth portfolios. This evidence is substantially weaker when the receptiveness of country value and growth returns to cashflow and discount rate news components of the respective national market return is in question. Moreover, I show that national news series are more important than international news series in explaining the variation in European value and growth returns. Even though European cashflow news play a marginally significant role in explaining returns on value portfolios, there is no persuasive evidence of the notion that high cashflow betas explain relatively high average returns on European countries´ value portfolios.

Suggested Citation

  • Nitschka, Thomas, 2006. "Does sensitivity to cashflow news explain the value premium on European stock markets?," Technical Reports 2006,12, Technische Universität Dortmund, Sonderforschungsbereich 475: Komplexitätsreduktion in multivariaten Datenstrukturen.
    • Handle: RePEc:zbw:sfb475:200612
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    More about this item

    Keywords

    cashflow and discount rate beta; international stock markets; value premium; book-to-market factor;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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