Dividend Growth, Cash Flow and Discount Rate News

45 Pages Posted: 1 Nov 2011

See all articles by Ian Garrett

Ian Garrett

Manchester Business School

Richard Priestley

Norwegian Business School

Date Written: October 31, 2011

Abstract

Using a new variable based on a model of dividend smoothing, we find dividend growth is highly predictable and cash flow news contributes importantly to return variability. Cash flow betas derived from this predictability are central to explaining the size effect in the cross section of returns. However, they do not explain the value effect; this is explained by noise betas. We also find that the relative importance of cash flow news in explaining recent stock price run-ups and subsequent falls increases when cash flow news is estimated directly.

Keywords: dividend growth, predictability, cash flow news, discount rate news

JEL Classification: G1

Suggested Citation

Garrett, Ian and Priestley, Richard, Dividend Growth, Cash Flow and Discount Rate News (October 31, 2011). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming. Available at SSRN: https://ssrn.com/abstract=1951622

Ian Garrett

Manchester Business School ( email )

Manchester
United Kingdom

Richard Priestley (Contact Author)

Norwegian Business School ( email )

Nydalsveien
37
N-0442 Oslo, 0283
Norway
47 46410515 (Phone)

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