How Do Portfolios of Excess Cash Holdings Perform During Periods of Uncertainty? Evidence from UK Companies

In this study, we examine the performance of portfolios based on excess cash holdings using a sample of UK listed firms. We argue that firms with excess cash holdings outperform firms that hold less cash. Strategically, excess cash holdings provide advantages in the product market and have been shown to lead to increases in the market value in a number of empirical studies. We find that the outperformance of the abnormally high excess cash holdings portfolio accelerates during periods of increased uncertainty. The results suggest that excess cash holding portfolio outperforms the low cash holding portfolios, the result is consistent after adjusting for contemporary asset pricing factors. Our results are robust to adjustments for factors known to affect asset pricing