Does cash flow predict returns?

Paresh Kumar Narayan, Joakim Westerlund

Research output: Contribution to journalArticleResearchpeer-review

5 Citations (Scopus)


In this paper, we propose the hypothesis that cash flow and cash flow volatility predict returns. We categorize firms listed on the New York Stock Exchange into sectors, and apply tests for both in-sample and out-of-sample predictability. While we find strong evidence that cash flow volatility predicts returns for all sectors, the evidence obtained when using cash flow as a predictor is relatively weak. Estimated profits and utility gains also suggest that it is cash flow volatility that is more relevant as a source of information than cash flow.

Original languageEnglish
Pages (from-to)230-236
Number of pages7
JournalInternational Review of Financial Analysis
Publication statusPublished - Oct 2014
Externally publishedYes


  • Cash flow volatility
  • Panel data
  • Predictability
  • Returns
  • Sectors

Cite this