Time Variation in Cash Flows and Discount Rates

56 Pages Posted: 3 Apr 2017 Last revised: 16 Jun 2019

See all articles by Tolga Cenesizoglu

Tolga Cenesizoglu

HEC Montreal - Department of Finance

Denada Ibrushi

St. Mary's University

Date Written: March 30, 2017


The relative contributions of cash flow and discount rate news to the conditional variance of market returns exhibit significant variation over time. We identify lagged changes in PPI inflation as the main macroeconomic determinant of this time variation. Cash flow betas of value stocks increase following an increase in inflation, suggesting that investors should either tilt their portfolios away from high cash-flow-risk stocks or hedge this risk after observing increasing inflation.

Keywords: Return decomposition, Dynamic conditional correlation model, Cash flow risk, Discount rate risk, Inflation

JEL Classification: G10, E31, G12

Suggested Citation

Cenesizoglu, Tolga and Ibrushi, Denada, Time Variation in Cash Flows and Discount Rates (March 30, 2017). Available at SSRN: https://ssrn.com/abstract=2943478 or http://dx.doi.org/10.2139/ssrn.2943478

Tolga Cenesizoglu

HEC Montreal - Department of Finance ( email )

3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7

HOME PAGE: http://www.hec.ca/en/profs/tolga.cenesizoglu.html

Denada Ibrushi (Contact Author)

St. Mary's University ( email )

1 Camino Santa Maria
San Antonio, TX TX 78228
United States

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