The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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Search results: 3.
What Drives Firm‐Level Stock Returns?
Published: 12/17/2002 | DOI: 10.1111/1540-6261.00421
Tuomo Vuolteenaho
I use a vector autoregressive model (VAR) to decompose an individual firm's stock return into two components: changes in cash‐flow expectations (i.e., cash‐flow news) and changes in discount rates (i.e., expected‐return news). The VAR yields three main results. First, firm‐level stock returns are mainly driven by cash‐flow news. For a typical stock, the variance of cash‐flow news is more than twice that of expected‐return news. Second, shocks to expected returns and cash flows are positively correlated for a typical small stock. Third, expected‐return‐news series are highly correlated across firms, while cash‐flow news can largely be diversified away in aggregate portfolios.
The Price Is (Almost) Right
Published: 11/25/2009 | DOI: 10.1111/j.1540-6261.2009.01516.x
RANDOLPH B. COHEN, CHRISTOPHER POLK, TUOMO VUOLTEENAHO
Most previous research tests market efficiency using average abnormal trading profits on dynamic trading strategies, and typically rejects the joint hypothesis of market efficiency and an asset pricing model. In contrast, we adopt the perspective of a buy‐and‐hold investor and examine stock price levels. For such an investor, the price level is more relevant than the short‐horizon expected return, and betas of cash flow fundamentals are more important than high‐frequency stock return betas. Our cross‐sectional tests suggest that there exist specifications in which differences in relative price levels of individual stocks can be largely explained by their fundamental betas.
The Value Spread
Published: 03/21/2003 | DOI: 10.1111/1540-6261.00539
Randolph B. Cohen, Christopher Polk, Tuomo Vuolteenaho
We decompose the cross‐sectional variance of firms' book‐to‐market ratios using both a long U.S. panel and a shorter international panel. In contrast to typical aggregate time‐series results, transitory cross‐sectional variation in expected 15‐year stock returns causes only a relatively small fraction (20 to 25 percent) of the total cross‐sectional variance. The remaining dispersion can be explained by expected 15‐year profitability and persistence of valuation levels. Furthermore, this fraction appears stable across time and across types of stocks. We also show that the expected return on value‐minus‐growth strategies is atypically high at times when their spread in book‐to‐market ratios is wide.