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 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 Stock Return and Dividend Growth Predictability Across the Business Cycle written by Stig Vinther Møller and published by . This book was released on 2015 with total page 57 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper develops an extension of Cochrane's (2008) joint hypothesis framework by allowing the coefficients to depend on the state of the economy. For recessions the results are clear-cut. Dividend yields vary entirely due to return predictability. However, in expansions, the "dog that did not bark" effect is present with respect to both return and dividend growth predictability. Dividend yields vary much less during stable periods of economic booms and returns and dividend growth seem only weakly predictable.

Download or read book The dog that did not bark a defense of return predictability written by John H. Cochrane and published by . This book was released on 2006 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: To question the statistical significance of return predictability, we cannot specify a null that simply turns off that predictability, leaving dividend growth predictability at its essentially zero sample value. If neither returns nor dividend growth are predictable, then the dividend-price ratio is a constant. If the null turns off return predictability, it must turn on the predictability of dividend growth, and then confront the evidence against such predictability in the data. I find that the absence of dividend growth predictability gives much stronger statistical evidence against the null, with roughly 1-2% probability values, than does the presence of return predictability, which only gives about 20% probability values. I argue that tests based on long-run return and dividend growth regressions provide the cleanest and most interpretable evidence on return predictability, again delivering about 1-2% probability values against the hypothesis that returns are unpredictable. I show that Goyal and Welch's (2005) finding of poor out-of-sample R2 does not reject return forecastability. Out-of-sample R2 is poor even if all dividend yield variation comes from time-varying expected returns

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 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 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 Testing Return Predictability with the Dividend growth Equation written by Erik Hjalmarsson and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

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 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 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 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 Essays on Return Predictability and Yield Factors written by Xuyang Ma and published by . This book was released on 2014 with total page 95 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation includes three chapters in which the first two are on return predictability and the third is on yield curve and yield factors. The abstract of each of them is as follows: 1), This paper proposes using capital gains instead of total returns in return predictability tests. Total return predictability can be inferred from capital gain predictability since total returns with dividends are highly correlated with returns based on capital gains only. An exact linear relationship exists among log dividend growth, log capital gain and log dividend price ratio. This exact linear relationship has similar implication as the Campbell-Shiller (1988) linear approximation but is more precise and easier for predictability tests. I verify the standard empirical findings on return predictability using capital gain predictability. Separation of price change and dividend change also leads to a new finding: shocks to dividend growth is shown to have significant positive correlation with shocks to dividend price ratio in the vector autoregressive regression (VAR) rather than close to zero as shown in previous literature. 2), This paper tests the return predictability of the cyclical and trend components in the log dividend price ratio. The log dividend ratio is found to have a near-unit root trend factor if the expectation of the future discount factor is highly persistent. We use Bayesian analysis and the Kalman filter to extract the strictly stationary and near-random-walk components in the log dividend price ratio. The extracted cyclical process can predict one-year ahead total returns during the post-war period and one-year ahead dividend growth rates during the pre-war and war period with notable R^2. We also demonstrate a reverse of predictability: returns become more predictable while dividend growth rates become more unpredictable. 3), This paper examines the fourth principal component of the yields matrix, which is largely ignored in macro-finance forecasting applications, in the context of predicting excess bond returns. Using yields data from the Fama-Bliss and the Federal Reserve, we present the significant in-sample and out-of-sample predictive power of models including the fourth yield factor. Additionally, the "return-forecasting factor" in Cochrane and Piazzesi (2005) is shown to be a restricted linear combination of all yield factors and to be highly correlated with the second and fourth factors. We interpret the fourth yield factor as a factor representing "S-shape" (the shape of a sigmoid curve) and demonstrate the connection between the S-shape factor and the yield curve.

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 Four Centuries of Return Predictability written by Benjamin Golez and published by . This book was released on 2014 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze four centuries of stock prices and dividends in the Dutch, English, and U.S. market. With the exception of the post-1945 period, the dividend-to-price ratio is stationary and predicts returns throughout all four centuries. "Excess volatility" is thus a pervasive feature of financial markets. The dividend-to-price ratio also predicts dividend growth rates in all but the most recent period. Cash-flows were therefore much more important for price movements before 1945, and the dominance of discount rate news is a relatively recent phenomenon. This is consistent with the increased duration of the stock market in the recent period.

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.