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Demographic Trends, the Dividend-Price Ratio, and the Predictability of Long-Run Stock Market Returns

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  • Favero, Carlo A.
  • Gozluklu, Arie E.
  • Tamoni, Andrea

Abstract

This paper documents the existence of a slowly evolving trend in the dividendprice ratio, dpt , determined by a demographic variable, MY : the middle-aged to young ratio. Deviations of dpt from this long-run component explain transitory but persistent fluctuations in stock market returns. The relation between MY and dpt is a prediction of an overlapping generation model. The joint significance of MY and dpt in longhorizon forecasting regressions for market returns explain the mixed evidence on the ability of dpt to predict stock returns and provide a model-based interpretation of statistical corrections for breaks in the mean of this financial ratio.

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Bibliographic Info

Article provided by Cambridge University Press in its journal Journal of Financial and Quantitative Analysis.

Volume (Year): 46 (2011)
Issue (Month): 05 (October)
Pages: 1493-1520

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Handle: RePEc:cup:jfinqa:v:46:y:2011:i:05:p:1493-1520_00

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Citations

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Cited by:
  1. : Arie E. Gozluklu, 2012. "Inflation, Stock Market and Long-Term Investors: Real Effects of Changing Demographics," Working Papers wpn12-06, Warwick Business School, Finance Group.
  2. Knell, Markus, 2013. "The Intergenerational Distribution of Demographic Fluctuations in Unfunded and Funded Pension Systems," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79830, Verein für Socialpolitik / German Economic Association.
  3. Carlo A. Favero & Arie E. Gozluklu & Haoxi Yang, 2011. "Demographics and The Behaviour of Interest Rates," Working Papers 388, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  4. Takáts, Előd, 2012. "Aging and house prices," Journal of Housing Economics, Elsevier, vol. 21(2), pages 131-141.
  5. Rengel, Malte & Herwartz, Helmut & Xu, Fang, 2013. "Persistence in the price-to-dividend ratio and its macroeconomic fundamentals," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79860, Verein für Socialpolitik / German Economic Association.

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