The Term Structure of Cash Flow Risk

Abstract

We estimate the term structure of cash flow risk and its price of risk for the most prominent equity anomalies, at different frequencies, by directly modeling the dividend growth series instead of relying on a VAR-residual approach. We find the term structure of cash flow risk to be upward sloping for most anomaly portfolios. Moreover, the price of cash flow risk appears to be anomaly-specific-different anomalies tend to display a different sensitivity to cash flow news-and frequency-dependent-for a given anomaly, this sensitivity varies with the horizon at which portfolios are evaluated.