Predictable Price Pressure

We demonstrate that predictable uninformed cash flows forecast market and individual stock returns. Buying pressure from dividend payments (announced weeks prior) predicts higher value-weighted market returns, with returns for the top quintile of payment days four times higher than the lowest. This...

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Bibliographic Details
Published in:NBER Working Paper Series 2022-11
Main Authors: Hartzmark, Samuel M, Solomon, David H
Format: Article
Language:English
Subjects:
Dividends
Economic theory
Efficient markets
Equity
Hypotheses
Prices
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Summary:We demonstrate that predictable uninformed cash flows forecast market and individual stock returns. Buying pressure from dividend payments (announced weeks prior) predicts higher value-weighted market returns, with returns for the top quintile of payment days four times higher than the lowest. This holds internationally, and increases when reinvestment is high and market liquidity is low. High stock expense firms have lower returns from selling pressure after blackout periods, by 117 b.p. in four days. We estimate market-level price multipliers of 1.5 to 2.3. These results suggest price pressure is a widespread result of flows, not an anomaly.
ISSN:0898-2937
DOI:10.3386/w30688