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

Abstract

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: https://ssrn.com/abstract=2813111 or http://dx.doi.org/10.2139/ssrn.2813111

Yiqing Dai (Contact Author)

affiliation not provided to SSRN

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
578
Abstract Views
2,533
Rank
86,447
PlumX Metrics