Net Cash Flow Yield and the Cross-Section of Stock Returns

67 Pages Posted: 24 Jul 2016 Last revised: 26 Mar 2019

See all articles by Yiqing Dai

Yiqing Dai

affiliation not provided to SSRN

Date Written: March 21, 2019


Fama and French (2006) decompose the valuation equation into the book to market ratio (BM), profitability and investment to estimate expected returns. In this paper, I attempt to integrate information from the valuation equation into one variable, net cash flow yield (NCFY), to capture expected returns. NCFY performs similarly to or better than a combination of BM, profitability and investment in explaining a broad set of return anomalies. A fundamentals-based four-factor model consisting of the market, size, monthly-updated NCFY, and earnings momentum factors dominates the recent models of Hou, Xue, and Zhang (2015), Barillas and Shanken (2017b), and Stambaugh and Yu (2017).

Keywords: value, profitability, investment, net cash flow yield, stock returns

JEL Classification: G11, G12

Suggested Citation

Dai, Yiqing, Net Cash Flow Yield and the Cross-Section of Stock Returns (March 21, 2019). Available at SSRN: or

Yiqing Dai (Contact Author)

affiliation not provided to SSRN

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