Aggregate Sales Growth and Stock Market Returns

Jon A. Garfinkel; Paul Hribar; Lawrence Hsiao

doi:10.2139/ssrn.5066654

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Aggregate Sales Growth and Stock Market Returns

Working paper

Open access

Aggregate Sales Growth and Stock Market Returns

Jon A. Garfinkel, Paul Hribar and Lawrence Hsiao

SSRN

01/06/2025

DOI: 10.2139/ssrn.5066654

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https://doi.org/10.2139/ssrn.5066654View

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Abstract

We examine the predictive content of aggregate sales growth (ASG) for stock market performance. ASG negatively predicts future stock market excess returns. In-sample tests show a one-standard-deviation increase in ASG leads to a decline of more than 6% in future annualized market excess returns. This negative relation is incremental to aggregate earnings growth and macroeconomic return predictors. In addition, the return-predicting power of ASG persists in out-of-sample tests, and mean-variance investors can construct a viable trading strategy via the forecasts based on ASG in real time. We explore potential channels. ASG negatively predicts various measures of aggregate earnings surprises, while being unrelated to subsequent discount rate proxies. Our findings suggest that the predictive ability of aggregate sales growth stems predominantly from a cash flow channel.

sales growth

stock market returns

Details

Title: Subtitle: Aggregate Sales Growth and Stock Market Returns
Creators: Jon A. Garfinkel - University of Iowa
Paul Hribar - University of Iowa, Accounting
Lawrence Hsiao - National Taiwan University
Resource Type: Working paper
DOI: 10.2139/ssrn.5066654
Publisher: SSRN
Number of pages: 62 pages
Language: English
Date posted: 01/06/2025
Academic Unit: Accounting; Finance
Record Identifier: 9984771627302771

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