Publications
Publications
- 2005
- HBS Working Paper Series
Aggregate Corporate Liquidity and Stock Returns
By: Robin Greenwood
Abstract
Aggregate investment in cash and liquid assets as a share of total corporate investment is negatively related to subsequent U.S. stock market returns between 1947 and 2003. The share of cash in total investment is a more stable predictor of returns than scaled price variables and performs well in out-of-sample predictability tests. Cash investment is a stronger predictor of market returns in years in which external financing is also high. The results support a theory in which firms in the aggregate actively time security issuance relative to investment needs, taking advantage of a time varying cost of capital.
Keywords
Citation
Greenwood, Robin. "Aggregate Corporate Liquidity and Stock Returns." Harvard Business School Working Paper, No. 05-014, April 2005.