Abstract

http://ssrn.com/abstract=2139735
 
 

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Idiosyncratic Cash Flows and Systematic Risk


Ilona Babenko


Arizona State University

Oliver Boguth


Arizona State University (ASU) - Finance Department

Yuri Tserlukevich


Arizona State University (ASU)

August 12, 2014

Western Finance Association 2013 Annual Meeting

Abstract:     
We show that unpriced cash flow shocks contain information about future priced risk. A positive idiosyncratic shock decreases the sensitivity of firm value to priced risk factors and simultaneously increases firm size and idiosyncratic risk. A simple model can therefore explain book-to-market and size anomalies, as well as the negative relation between idiosyncratic volatility and stock returns. Using the model, we identify firms for which anomalies must be stronger and confirm this relation empirically. More generally, our results imply that any economic variable correlated with the history of idiosyncratic shocks can help to explain expected stock returns.

Number of Pages in PDF File: 52

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Date posted: September 2, 2012 ; Last revised: August 13, 2014

Suggested Citation

Babenko, Ilona and Boguth, Oliver and Tserlukevich, Yuri, Idiosyncratic Cash Flows and Systematic Risk (August 12, 2014). Western Finance Association 2013 Annual Meeting. Available at SSRN: http://ssrn.com/abstract=2139735 or http://dx.doi.org/10.2139/ssrn.2139735

Contact Information

Ilona Babenko
Arizona State University ( email )
Farmer Building 440G PO Box 872011
Tempe, AZ 85287
United States
Oliver Boguth
Arizona State University (ASU) - Finance Department ( email )
W. P. Carey School of Business
PO Box 873906
Tempe, AZ 85287-3906
United States
Yuri Tserlukevich (Contact Author)
Arizona State University (ASU) ( email )
Farmer Building 440G PO Box 872011
Tempe, AZ 85287
United States
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