Does cash-flow news play a better role than discount-rate news? Evidence from global regional stock markets

摘要

We develop a log-linear structural vector auto-regressive (SVAR) model to decompose unexpected excess market returns into four components: changes in permanent and temporary cash-flow expectations (i.e., permanent and temporary cash-flow news), changes in discount rates (i.e., discount-rate news), and changes in non-fundamentals (i.e., non-fundamental news). This advanced return-decomposition framework enables us to examine the relative importance of the four news components when explaining the cross-sectional variations of stock returns. The log-linear SVAR yields three main results. First, contrary to recent evidence in the U.S., we find that discount-rate news plays a more important role than cash-flow news in global regional stock markets. Second, in the case of asset pricing, non-fundamental factors (i.e., investor sentiment) also play a role in the regional stock markets outside North America. Finally, the risk premiums of news are significantly higher in a down market than in an up market. (C) 2020 Elsevier Ltd. All rights reserved.