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Stock Returns and Cash Flows: A New Asset Pricing Approach

Author

Listed:
  • Sonia Di TOMASO
  • Denis Marco MONTAGNA
  • Antonio AMENDOLA

    (University of Pavia
    University of Pavia
    University of Pavia)

Abstract

This study is focused on a non-conventional profitability measure, at least in terms of assets pricing models, where dividends or profits are widely used. The attention is focused on a proxy measure of Operating Cash Flows: the "Ebitda after Capex". The relationship returns – cash flows' volatility has been examined through an empirical analysis conducted on the stocks of the S&P500 Index combining the main quantitative and statistical approach with a qualitative overview respect the macroeconomic background. Starting from a correlation rolling window approach, three different regressions techniques have been implemented; the simple Ordinary Least Squares regressions (OLS), the linear Quantile (LQR) regression and the Multiple regression model (MLR), all performed at different levels in terms of stocks (QoQ and YoY) and sectors (MoM, QoQ, YoY). The cross-sectional and time-series results support the effects of cash flow volatility on the stocks' performance and highlighted its sensitivity respect not only the different short-term and long-term horizons, but also in terms of sector' exposure.

Suggested Citation

  • Sonia Di TOMASO & Denis Marco MONTAGNA & Antonio AMENDOLA, 2021. "Stock Returns and Cash Flows: A New Asset Pricing Approach," Journal of Economics and Financial Analysis, Tripal Publishing House, vol. 5(2), pages 85-120.
    • Handle: RePEc:trp:01jefa:jefa0051
    DOI: 10.1991/jefa.v5i2.a47
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    References listed on IDEAS

    as
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    2. John Baffes & M. Ayhan Kose & Franziska Ohnsorge & Marc Stocker, 2015. "The Great Plunge in Oil Prices: Causes, Consequences, and Policy Responses," Policy Research Notes (PRNs) 94725, The World Bank.
    3. Metrick, Andrew, 2019. "The Lehman Brothers Bankruptcy A: Overview," Journal of Financial Crises, Yale Program on Financial Stability (YPFS), vol. 1(1), pages 39-62, March.
    4. Linh Nghiem, 2015. "Risk-return relationship: An empirical study of different statistical methods for estimating the Capital Asset Pricing Models (CAPM) and the Fama-French model for large cap stocks," Papers 1511.07101, arXiv.org.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Asset Pricing; Volatility; Return; Quantile Regression; Cash Flow; Financial Modelling; CAPM; Fama-French Models.;
    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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