Accruals, cash flows, and aggregate stock returns
This paper examines whether the firm-level accrual and cash flow effects extend to the aggregate stock market. In sharp contrast to previous firm-level findings, aggregate accruals is a strong positive time series predictor of aggregate stock returns, and cash flows is a negative predictor. In addition, innovations in accruals are negatively contemporaneously correlated with aggregate returns, and innovations in cash flows are positively correlated with returns. These findings suggest that innovations in accruals and cash flows contain information about changes in discount rates, or that firms manage earnings in response to marketwide undervaluation.
Year of publication: |
2009
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Authors: | Hirshleifer, David ; Hou, Kewei ; Teoh, Siew Hong |
Published in: |
Journal of Financial Economics. - Elsevier, ISSN 0304-405X. - Vol. 91.2009, 3, p. 389-406
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Publisher: |
Elsevier |
Keywords: | Aggregate stock returns Accruals Cash flows Discount rates Behavioral finance |
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