The cross-section of equity returns and assets’ fundamental cash-flow risk

Galsband, Victoria

doi:10.1007/s11408-010-0140-z

Cited by 1 publication

(1 citation statement)

References 53 publications

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“…Moreover, revenue is a fundamental indicator of future cash flows and Vuolteenaho (2002) demonstrates that news concerning cash flows drive stock returns. Galsband (2010) finds that macroeconomic risks contained in cash flows largely account for differences in expected excess returns for consumption-based models. Theoretical approaches to explaining the market value of firms based on revenue include the discounted cash flow models (Copeland et al 1994), revenue-based multiples, value driver models (Rappaport 1986), and stochastic models (Schwartz and Moon 2000;Erdorf et al 2011).…”

Section: Related Literaturementioning

confidence: 98%

Co-movement of revenue: structural changes in the business cycle

Erdorf

Heinrichs

2011

Financ Mark Portf Manag

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The co-movement of revenue growth across different industries changes over the business cycle. Using a large sample of quarterly firm revenues, aggregated to industry data from 1969 to 2009, we demonstrate that the correlation is the highest during a crisis. Our findings of structural changes in correlation have implications for diversification decisions in portfolio analysis and risk management. The higher correlation in crisis periods increases the downside risk and bankruptcy probability of business portfolios. We test the hypothesis that average correlations are significantly different, by applying permutation and bootstrap techniques. As robustness checks, both correlations between industries and the aggregate market and correlations between earnings confirm our findings.

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Section: Related Literaturementioning

confidence: 98%