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Dividend Yields for Forecasting Stock Market Returns. An ARDL Cointegration Analysis for Germany

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Author Info
Ansgar Belke (University of Hohenheim,Department of Economics, Stuttgart)
Thorsten Polleit (Barclays Capital and Business School of Finance & Management,Frankfurt)

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Abstract

This paper empirically assesses the ability of dividend yields to predict future tock returns in Germany assuming efficient markets and rational expectations. Since the order of integration of repressors are not exactly known, a bound procedure, namely a n autoregressive distributed lag (ARDL) model, is applied to test for cointegrating relationships among future stock returns and today’s divided yields. It is also capable of dealing with the controversial issue of exogeneity of the dividend yield. ARDL and error-correction models are estimated for (future) stock returns and the dividend yield based on consistent estimates and standard normal asymptotic theory.

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Publisher Info
Article provided by Cyprus Economic Society and University of Cyprus in its journal Ekonomia.

Volume (Year): 9 (2006)
Issue (Month): 1 (Summer)
Pages: 86-116
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Handle: RePEc:ekn:ekonom:v:9:y:2006:i:1:p:86-116

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Find related papers by JEL classification:
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies

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  4. French, Kenneth R. & Schwert, G. William & Stambaugh, Robert F., 1987. "Expected stock returns and volatility," Journal of Financial Economics, Elsevier, vol. 19(1), pages 3-29, September. [Downloadable!] (restricted)
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  10. Fama, Eugene F. & French, Kenneth R., 1988. "Dividend yields and expected stock returns," Journal of Financial Economics, Elsevier, vol. 22(1), pages 3-25, October. [Downloadable!] (restricted)
  11. Hodrick, Robert J, 1992. "Dividend Yields and Expected Stock Returns: Alternative Procedures for Inference and Measurement," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 5(3), pages 357-86. [Downloadable!] (restricted)
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  13. Phillips, Peter C B & Hansen, Bruce E, 1990. "Statistical Inference in Instrumental Variables Regression with I(1) Processes," Review of Economic Studies, Blackwell Publishing, vol. 57(1), pages 99-125, January. [Downloadable!] (restricted)
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    Other versions:
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