A large body of literature suggests that firm-level stock prices quot;underreactquot; to news about future cash flows. We estimate a vector autoregession to examine the joint behavior of returns, cash-flow news, and trading between individuals and institutions. Our main finding is that...

I use a vector autoregressive model (VAR) to decompose an individual firm's stock return into two components: changes in cash-flow expectations (i.e., cash-flow news) and changes in discount rates (i.e., expected-return news). The VAR yields three main results. First, firm-level stock returns...

Kothari and Shanken (1992) argue that stock return variation can, to a large extent, be explained by rational revisions of future dividend expectations. Kothari and Shanken arrive at this conclusion based on the explanatory power of a regression of returns on lagged dividend yield,...

Stock returns are correlated with contemporaneous earnings growth, dividend growth, future real activity, and other cash-flow proxies. The correlation between cash-flow proxies and stock returns may arise from association of cash-flow proxies with one-period expected returns, cash-flow news,...

Stock returns are correlated with contemporaneous earnings growth, dividend growth, future real activity, and other cash-flow proxies. The correlation between cash-flow proxies and stock returns may arise from association of cash-flow proxies with one-period expected returns, cash-flow news,...

A large body of literature suggests that firm-level stock prices 'underreact' to news about future cash flows, i.e., shocks to a firm's expected cash flows are positively correlated with shocks to expected returns on its stock. We estimate a vector autoregession to examine the joint behavior of...

I use a vector autoregressive model (VAR) to decompose an individual firm's stock return into two components: changes in cash-flow expectations (i.e., cash-flow news) and changes in discount rates (i.e., expected-return news). The VAR yields three main results. First, firm-level stock returns...

I use a simple vector autoregressive (VAR) model to decompose a typical firm's stock return into two components: changes in cash-flow expectations (i.e., cash-flow news) and changes in discount rates (i.e., expected-return news). The VAR model yields three main results. First, firm-level stock...

In order to connect the stock market valuation level to medium-term cash-flow fundamentals, I develop a dynamic model that links the book-to-market ratio to subsequent profitability, interest rates, and excess stock returns. My approach avoids modeling the potentially unstable dividend process....

Stock returns are correlated with contemporaneous earnings growth, dividend growth, future real activity, and other cash-flow proxies. The correlation between cash-flow proxies and stock returns may arise from association of cash-flow proxies with one-period expected returns, cash-flow news,...