@techreport{NBERw8240,
 title = "What Drives Firm-Level Stock Returns?",
 author = "Tuomo Vuolteenaho",
 institution = "National Bureau of Economic Research",
 type = "Working Paper",
 series = "Working Paper Series",
 number = "8240",
 year = "2001",
 month = "April",
 URL = "http://www.nber.org/papers/w8240",
 abstract = {I use a vector autoregressive model (VAR) to decompose an individual firm's stock return into two components: changes in cash-flow expectations (i.e., cash-flow news) and changes in discount rates (i.e., expected-return news). The VAR yields three main results. First, firm-level stock returns are mainly driven by cash-flow news. For a typical stock, the variance of cash-flow news is more than twice that of expected-return news. Second, shocks to expected returns and cash flows are positively correlated for a typical small stock. Third, expected-return-news series are highly correlated across firms, while cash-flow news can largely be diversified away in aggregate portfolios.},
}