On the relationship between expected cash flows and stock returns – an analysis of Taiwan stocks using analysts' earnings forecasts

• Main Authors: Deng, Wen-Shu, 鄧文述
• Other Authors: Hsieh, Wen-Liang
• Format: Others
• Language: zh-TW
• Published: 2014
• Online Access: http://ndltd.ncl.edu.tw/handle/sd4z5j

碩士 === 國立交通大學 === 管理學院財務金融學程 === 102 === Literature claims that the market revisions for expected future cash flows and expected discount rate dominate the stock price movements. Intuitively, the main impact of the stock price should be the company's future earnings expectations, that is, expected cash flows. However, some studies have shown that the expected discount rate dominate stock returns. That is, the risk affect share price more than expected profit does. Some scholars have questioned the results _ obtained from using predictive regression. In this study, the method to explore the factors of the stock price movement is different from the past predictive regression method. We use the implied cost of capital (ICC) approach accompanied by analysts' earnings forecasts, to split stock return into components affected by cash flows and discount rate. The hypothesis of this study is that the main factor drives the price changes is the cash flow expectation. This study uses the earnings forecasts of analysts' reports from 2006 to 2011. I find that the market revisions for expected cash flows dominate the stock price movements, and the longer the investment horizon, the greater correlation of the return volatility. For horizons beyond one year, cash flow news is a more important factor of stock returns than is discount rate news. This findings suggest that, in the long run, market concerns the fundamental of businesses when evaluating their performance.