We provide novel evidence on which theories best explain stock return anomalies by decomposing anomaly portfolio returns into components driven by the underlying …rms’cash ‡ows or their discount rates. For each of …ve well-known anomalies, we …nd that cash ‡ow shocks explain more variation in anomaly portfolio returns than discount rate shocks. The cash ‡ow and discount rate components of each ...

We study optimal monetary policy at the zero lower bound. The macroeconomy we study has considerable income inequality which gives rise to a large private sector credit market. Households participating in this market use non-state contingent nominal contracts (NSCNC). A second, small group of households only uses cash and cannot participate in the credit market. The monetary authority supplies ...

This study examines the impact of working capital management on firms’ performance and market value of the firms in Nigeria. A sample of fifty four non-financial quoted firms in Nigeria listed on the Nigeria Stock Exchange was used for this study. Data were collected from annual reports of the sampled firms for the period 1995-2009. This result shows there is a significant negative relationship...

In the research literature on UK take-overs there seems to be an apparent conundrum. First, it appears that, in general, the market anticipates overall equity cash flow gains from a take-over in the sense that the share price of the acquiree firm typically increases relative to some appropriately market-adjusted benchmark over the period of time from the announcement of the take-over to the dat...

This paper examines whether the firm-level accrual and cash flow effects extend to the aggregate stock market. In sharp contrast to previous firm-level findings, aggregate accruals is a strong positive time series predictor of aggregate stock returns, and cash flows is a negative predictor. In addition, innovations in accruals are negatively contemporaneously correlated with aggregate returns, ...

This paper examines optimal portfolios with discounted stochastic cash inflows (SCI). The cash inflows are invested into a market that is characterized by inflation-linked bond, a stock and a cash account. It was assumed that inflationlinked bond, stock and the cash inflows are stochastic and follow a standard geometric Brownian motion. The variational form of Merton portfolio strategy was obta...

An Information-Based Framework for Asset Pricing: X-Factor Theory and its Applications. This thesis presents a new framework for asset pricing based on modelling the information available to market participants. Each asset is characterised by the cash flows it generates. Each cash flow is expressed as a function of one or more independent random variables called market factors or “X-factors”. E...

We consider optimal hedging decisions for a firm whose stock returns are affected by market returns and an idiosyncratic factor that is orthogonal to the market return. We show that the level of firm’s cash flows depend on the level of the market and the level of the idiosyncratic factor multiplicatively because of compounding. Minimizing the variance of the cash flow requires a substantial off...