Abstract

http://ssrn.com/abstract=1121893
 
 

References (72)



 
 

Citations (21)



 


 



What Drives Stock Price Movement?


Long Chen


Cheung Kong Graduate School of Business

Zhi Da


University of Notre Dame - Mendoza College of Business

Xinlei Shelly Zhao


Office of the Currency Comptroller - Risk Analysis Division; Kent State University - Department of Finance

March 20, 2012


Abstract:     
A central issue in asset pricing is whether stock prices move because of revisions of expected future cash flows or expected discount rates, and by how much of each. Using direct cash flow forecasts, we show that there is a significant component of cash flow news in stock returns, and its importance compared to discount rate news increases with the investment horizon. For horizons over two years, cash flow news is more important than discount rate news. These conclusions hold at both the firm and aggregate levels, and diversification plays only a secondary role in affecting the relative importance of cash flow and discount rate news. Overall, the findings demonstrate the importance of cash flow in asset pricing.

Number of Pages in PDF File: 53

Keywords: Expected return, discount rate news, cash flow news, predictability, analyst forecast

JEL Classification: G12, E44

working papers series


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Date posted: April 18, 2008 ; Last revised: March 24, 2012

Suggested Citation

Chen, Long and Da, Zhi and Zhao, Xinlei Shelly, What Drives Stock Price Movement? (March 20, 2012). Available at SSRN: http://ssrn.com/abstract=1121893 or http://dx.doi.org/10.2139/ssrn.1121893

Contact Information

Long Chen (Contact Author)
Cheung Kong Graduate School of Business ( email )
Oriental Plaza, Tower E3
One East Chang An Avenue
Beijing, 100738
China
Zhi Da
University of Notre Dame - Mendoza College of Business ( email )
Notre Dame, IN 46556-5646
United States
Xinlei Zhao
Office of the Currency Comptroller - Risk Analysis Division ( email )
250 E Street, SW
Washington, DC 20219
United States
Kent State University - Department of Finance ( email )
College of Business Administration
P.O. Box 5190
Kent, OH 44242-0001
United States
330-672-1213 (Phone)
330-672-9806 (Fax)
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