TY - UNPD
A1 - Botshekan, Mahmoud
A1 - Kräussl, Roman
A1 - Lucas, André
T1 - Cash flow and discount rate risk in up and down markets: what is actually priced?
T2 - Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2010,20
N2 - We test whether asymmetric preferences for losses versus gains as in Ang, Chen, and Xing (2006) also affect the pricing of cash flow versus discount rate news as in Campbell and Vuolteenaho (2004). We construct a new four-fold beta decomposition, distinguishing cash flow and discount rate betas in up and down markets. Using CRSP data over 1963–2008, we find that the downside cash flow beta and downside discount rate beta carry the largest premia. We subject our result to an extensive number of robustness checks. Overall, downside cash flow risk is priced most consistently across different samples, periods, and return decomposition methods, and is the only component of beta that has significant out-of-sample predictive ability. The downside cash flow risk premium is mainly attributable to small stocks. The risk premium for large stocks appears much more driven by a compensation for symmetric, cash flow related risk. Finally, we multiply our premia estimates by average betas to compute the contribution of the different risk components to realized average returns. We find that up and down discount rate components dominate the contribution to average returns of downside cash flow risk. Keywords: Asset Pricing, Beta, Downside Risk, Upside Risk, Cash Flow Risk, Discount Rate Risk JEL Classification: G11, G12, G14
T3 - CFS working paper series - 2010, 20
KW - Asset Pricing
KW - Beta
KW - Downside Risk
KW - Upside Risk
KW - Cash Flow Risk
KW - Discount Rate Risk
KW - Cashflow
KW - Diskontsatz
Y1 - 2010
UR - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/20473
UR - https://nbn-resolving.org/urn:nbn:de:hebis:30-87086
IS - November 2010
ER -