Discussion paper

DP14117 Cash Flow News and Stock Price Dynamics

We develop a new approach to modeling dynamics in cash flow data extracted from daily firm-level dividend announcements. We decompose daily cash flow news into a persistent component, jumps, and temporary shocks. Empirically, we find that the persistent cash flow component is a highly significant predictor of future growth in dividends and consumption. Using a log-linearized present value model, we show that news about the persistent dividend growth component helps predict stock returns consistent with asset-pricing constraints implied by this model. News about the daily dividend growth process also helps explain concurrent return volatility and the probability of jumps in stock returns.


Pettenuzzo, D, R Sabbatucci and A Timmermann (2019), ‘DP14117 Cash Flow News and Stock Price Dynamics‘, CEPR Discussion Paper No. 14117. CEPR Press, Paris & London. https://cepr.org/publications/dp14117