Download or read book Dividend Smoothing and Predictability written by Long Chen and published by . This book was released on 2011 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: The relative predictability of returns and dividends is a central issue since it forms the paradigm to interpret asset price variation. A little studied question is how dividend smoothing, as a choice of corporate policy, affects predictability. We show that, even if dividends are supposed to be predictable without smoothing, dividend smoothing can bury this predictability in a finite sample. We further show that aggregate dividends are dramatically more smoothed in the postwar period than before. Therefore, the lack of dividend growth predictability in the postwar period, as widely documented in the literature, does not necessarily mean that there is no cash flow news in stock price variations; rather, a more plausible interpretation is that dividends are smoothed. Using two alternative measures that are less subject to dividend smoothing -- net payout and earnings -- we reach the consistent conclusion that cash flow news plays a more important role than discount rate news in price variations in the postwar period. Our take-away messages are that (i) dividend smoothing can severely affect dividend predictability in a finite sample, (ii) there is significant cash flow news in stock price variations, and (iii) when smoothed, dividends do not represent well the outlook of future cash flows.

Download or read book Dividend Growth and Return Predictability written by Gertjan Verdickt and published by . This book was released on 2019 with total page 65 pages. Available in PDF, EPUB and Kindle. Book excerpt: We re-examine dividend growth and return predictability evidence using 165 years of data from the Brussels Stock Exchange. The conventional wisdom holds that time-varying dividend yield is predominately explained by changes in expected returns and that expected dividend growth is only weakly forecastable. However, we find robust dividend growth predictability evidence in every time period. A lack of dividend smoothing is the most important reason for the disconnect with previous evidence. Furthermore, we find return predictability in the post-World War II period when we adjust the dividend yields for changing index composition, business cycle variation and structural breaks. This is explained by a simultaneous increase in equity duration, induced by an increasing importance of growth stocks.

Download or read book Revisiting Dividend Growth Predictability Via Dividend Yield written by Panagiotis Asimakopoulos and published by . This book was released on 2014 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: One of the main theoretical implications of the present value approach on firm valuation is the hypothesis that dividend yield has a predictive power on future dividend growth. The relevant literature, however, was not able to provide evidence that clearly supports this hypothesis. In this paper we cope with the two main reasons that raise the econometric complexity on testing the dividend growth predictability hypothesis, namely, the seasonality effects that appear when higher frequency data are used, and the effect of price volatility on the computation of dividend yield. Specifically, an application of a the Mixed Data Sampling (MiDaS) technique allows us to use monthly dividend data in order to test the hypothesis that dividend yield explains the future annual dividend growth. In order to cancel out the effects of price variation on dividend yield we use a smoothing technique, and we identify the component of the smoothed dividend yield that offers predictive power. Empirical evidence from US, UK, Canada, Germany, France and Japan, strongly supports the dividend growth predictability hypothesis.

Download or read book Time Disaggregated Dividend Price Ratio and Dividend Growth Predictability in Large Equity Markets written by Panagiotis Asimakopoulos and published by . This book was released on 2016 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: Even in large equity markets, the dividend-price ratio is significantly related with the growth of future dividends. In order to uncover this relationship, we use monthly dividends and a mixed data sampling technique which allows us to cope with within-year seasonality. We reduce the effect of price volatility on the dividend-price ratio by applying a simple smoothing technique, and we identify the component of the smoothed dividend-price ratio that offers predictive power. An empirical analysis using market level data from U.S., U.K., Canada and Japan strongly supports the dividend growth predictability hypothesis, suggesting that time-aggregation of dividends eliminates significant information.

Download or read book Uncovering Dividend Growth Predictability written by Abhay Abhyankar and published by . This book was released on 2015 with total page 55 pages. Available in PDF, EPUB and Kindle. Book excerpt: We re-visit a puzzling result that in U.S. post-WW II data the dividend price ratio can predict aggregate returns but not dividend growth. We find that predictive regressions are sensitive to the method used to aggregate firm-level data. Using value weighted firm-level data we find strong evidence for dividend growth predictability in the post-WW II period. We explore the reasons behind the differences in predictability due to different weighting methods. We find that these differences in predictability are related to the fact, in the data, that it is not always the largest firms that pay the largest dollar dividends or earnings.

Download or read book On the Reversal of Return and Dividend Growth Predictability written by Long Chen and published by . This book was released on 2008 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt: A disconcerting, albeit generally accepted, finding is that aggregate stock return is predictable by dividend yield but dividend growth is unpredictable. I show that part of this lack of dividend growth predictability stems from how dividend growth is constructed. I then document a dramatic reversal of predictability in the 134 years during 1872-2005: stock return is largely unpredictable in the first seven decades, but becomes predictable in the postwar period; dividend growth is strongly predictable in the prewar years but this predictability disappears in the postwar years. New evidence on the predictability of long-run return and dividend growth is also documented.

Download or read book Dividend Growth Predictability and Stock Price Movement written by Min Zhu and published by . This book was released on 2016 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies dividend growth predictability without restricting conditioning information set to dividend yield alone. We highlight that predictability crucially hinges on how dividend growth is constructed. Dividend growth without reinvestment is significantly predictable both in-sample and out-of-sample by a number of economic fundamentals. The results are robust across subsamples. When dividend growth predictability is properly taken account of, it leads to a different picture of variance decomposition of returns. Contrary to the prevailing views, the cash flow news is important in driving stock price movement in aggregate level after incorporating dividend growth predictability.

Download or read book Dividend Behavior for the Aggregate Stock Market written by Terry A Marsh and published by Legare Street Press. This book was released on 2022-10-27 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This work has been selected by scholars as being culturally important, and is part of the knowledge base of civilization as we know it. This work is in the "public domain in the United States of America, and possibly other nations. Within the United States, you may freely copy and distribute this work, as no entity (individual or corporate) has a copyright on the body of the work. Scholars believe, and we concur, that this work is important enough to be preserved, reproduced, and made generally available to the public. We appreciate your support of the preservation process, and thank you for being an important part of keeping this knowledge alive and relevant.

Download or read book The predictability of returns with regime shifts in consumption and dividend growth written by Anisha Ghosh and published by . This book was released on 2010 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: The predictability of the market return and dividend growth is addressed in an equilibrium model with two regimes. A state variable that drives the conditional means of the aggregate consumption and dividend growth rates follows different time-series processes in the two regimes. In linear predictive regressions over 1930-2009, the market return is predictable by the price-dividend ratio with R2 11.7% if the probability of being in the first regime exceeds 50%; and dividend growth is predictable by the price-dividend ratio with R2 28.3% if the probability of being in the second regime exceeds 50%. The model-implied state variables perform significantly better at predicting the equity, size, and value premia, the aggregate consumption and dividend growth rates, and the variance of the market return than linear regressions with the market price-dividend ratio and risk free rate as predictive variables.

Download or read book Time Varying Predictability for Stock Returns Dividend Growth and Consumption Growth written by David G. McMillan and published by . This book was released on 2014 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using a state-space model, this paper examines time-variation in the predictive regressions for stock returns, dividend growth and consumption growth. Moreover, we linked time-variation explicitly to movements in economic factors that can account for risk and cash flow. Results support the view that stock return predictability is enhanced when risk is high (negative growth, higher volatility and positive growth/return covariance). In contrast, dividend growth and consumption growth predictability is enhanced during economic expansions. These results are supported by sub-sample analysis and a VAR approach. Furthermore, these latter exercises may uncover differences in the stock return predictability relationship when viewed over different time horizons. Overall, the paper contributes to the literature by highlighting the different nature of returns predictability, which arises largely through the risk channel and dividend and consumption growth predictability, which arise through the cash flow channel.

Download or read book Dividend Momentum and Stock Return Predictability written by Juan Antolín-Díaz and published by . This book was released on 2021 with total page 78 pages. Available in PDF, EPUB and Kindle. Book excerpt: A long tradition in macro-finance studies the joint dynamics of aggregate stock returns and dividends using vector autoregressions (VARs), imposing the cross-equation restrictions implied by the Campbell-Shiller (CS) identity to sharpen inference. We take a Bayesian perspective and develop methods to draw from any posterior distribution of a VAR that encodes a priori skepticism about large amounts of return predictability while imposing the CS restrictions. In doing so, we show how a common empirical practice of omitting dividend growth from the system amounts to imposing the extra restriction that dividend growth is not persistent. We highlight that persistence in dividend growth induces a previously overlooked channel for return predictability, which we label "dividend momentum." Compared to estimation based on OLS, our restricted informative prior leads to a much more moderate, but still significant, degree of return predictability, with forecasts that are helpful out-of-sample and realistic asset allocation prescriptions with Sharpe ratios that out-perform common benchmarks.

Download or read book On the Predictability of Stock Returns written by Jin Zhang and published by . This book was released on 2002 with total page 84 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Dividend Yields Dividend Growth and Return Predictability in the Cross Section of Stocks written by Paulo F. Maio and published by . This book was released on 2015 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: There is a generalized conviction that variation in dividend yields is exclusively related to expected returns and not to expected dividend growth - e.g. Cochrane's presidential address (Cochrane (2011)). We show that this pattern, although valid for the aggregate stock market, is not true for portfolios of small and value stocks, where dividend yields are related mainly to future dividend changes. Thus, the variance decomposition associated with aggregate dividend yield has important heterogeneity in the cross-section of equities. Our results are robust to different forecasting horizons, econometric methodology used (long-horizon regressions or first-order VAR), and an alternative decomposition based on excess returns.

Download or read book Stock Return Dividend Growth and Consumption Growth Predictability Across Markets and Time written by David G. McMillan and published by . This book was released on 2014 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper links variation in the predictive regressions for stock returns, dividend growth and consumption growth to economic and market factors. The nature of these links can reveal whether movement in asset prices occurs primarily through the discount rate (risk-free rate or risk premium) or cash flow (economic conditions) channel, while they also help explain the mixed results for predictability reported in the literature. Variation is examined through cross-sectional regressions across fifteen markets and over time using rolling regressions. The cross-sectional and time-varying parameters are regressed against output growth, interest rates and inflation as well as market variables using fixed effects panel as well as both OLS and logit approaches. Panel and time-series predictive regressions based on two approaches that seek to identify periods of high expected returns (high risk premium) are also considered. The key implication for asset pricing is that although movement occurs through both channels, stock return predictability is more dominated by the discount rate channel and consumption growth predictability more so by the cash flow channel. Intuitively, such a difference may arise as investors and households rebalance their asset holdings and consumption at different speeds. There is also some evidence of money illusion through the inflation variable.

Download or read book Are Dividends and Stock Returns Predictable New Evidence Using M A Cash Flows written by Riccardo Sabbatucci and published by . This book was released on 2015 with total page 59 pages. Available in PDF, EPUB and Kindle. Book excerpt: Aggregate dividend growth is widely thought to be unpredictable by the dividend price ratio. I show that this lack of predictability is related to the measurement of dividends. If M&A cash flows are taken into account, the adjusted R2 from a regression of dividend growth on the dividend price ratio goes from being negative (-1.18%) to being positive (17.54%) and coefficients become highly statistically significant. Strong improvements are also found for consumption growth (2.10% to 11.76%) and returns (1.86% to 4.40%). Out-of-sample R2 for dividend growth and returns are large and statistically significant. I also show that dividend price variation is fundamentally linked to cash flows news and not only to discount rate news. Lastly, I find stronger predictability in industries with the largest M&A activity.

Download or read book On the Relation Between the Persistence and Predictability of Dividend Growth Rates written by Jan Schneider and published by . This book was released on 2013 with total page 21 pages. Available in PDF, EPUB and Kindle. Book excerpt: All variations in price-dividend ratios result from either movements in expected returns or expected dividend growth rates. If growth rates contain a persistent component, even small changes in expected near-term dividends can cause large movements in prices. I derive closed-form solutions for the relation between the persistency of dividend growth rates and the ability of price-dividend ratios to forecast future dividends. For a constant risk premium, it is possible to match the low predictability of near-term dividends by choosing a sufficiently long half-life of news, however, this long half-life implies a counterfactual high degree of predictability for long-term dividend growth rates.

Download or read book Discrete Dividend Policy with Permanent Earnings written by Bong-Soo Lee and published by . This book was released on 2009 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop an empirically tractable dynamic model of discrete dividend policy based on an inter-temporal coarse signaling framework in which dividend adjustments signal only substantial variations in the permanent earnings of the firm. Our theoretical framework relates the extent of dividend smoothing to the information content of dividends and also generates refutable predictions on the determinants of high or low smoothing by firms. Using an empirical methodology developed to test our predictions, we show that dividend smoothing is positively associated with factors that adversely impact the investor demand for the firm's shares. These factors include risk factors such as earnings variance, low liquidity, and high probability of bankruptcy, as well as the expected return on capital investment by the firm.