Aggregate corporate liquidity and stock returns

摘要: Aggregate investment in cash and liquid assets as a share of total corporate negatively predicts U.S. stock market returns between 1947 2003. The is more stable predictor than scaled price variables performs well out-of-sample predictability tests. Increases are uncorrelated with planned increases current or lagged changes profitability, but related to other known predictors that positively subsequent returns. Cash stronger years which external financing also high. results support theory active timing, accumulation the consequence overvalued firms issuing finance cannot be spent productively they do not immediately return investors.