When does Cash-flow Risk Matter to Investors? Evidence from the COVID-19 Pandemic

45 Pages Posted: 3 Apr 2020 Last revised: 8 Jun 2020

See all articles by Petra Sinagl

Petra Sinagl

University of Iowa - Department of Finance

Date Written: June 6, 2020

Abstract

I use the exogenous shock to aggregate consumption caused by the COVID-19 pandemic to examine the importance of cash-flow risk for investors. I find that the industry long-run cash-flow risk predicted which industries performed worst during the pandemic. High cash-flow risk industries experienced abnormally low excess returns and substantially higher risk levels during the first three months of 2020. I use dividend futures data to show that the equity term structure inverted and forward equity yields proliferated after mid-March 2020, which may explain the heightened relevance of cash-flow risk during the pandemic.

Keywords: COVID-19 pandemic, equity term structure, US industry performance, consumption shocks

JEL Classification: G01, G12

Suggested Citation

Sinagl, Petra, When does Cash-flow Risk Matter to Investors? Evidence from the COVID-19 Pandemic (June 6, 2020). Available at SSRN: https://ssrn.com/abstract=3566511 or http://dx.doi.org/10.2139/ssrn.3566511

Petra Sinagl (Contact Author)

University of Iowa - Department of Finance ( email )

Iowa City, IA 52242-1000
United States

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