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Are there threshold effects in the stock price-dividend relation? The case of the US stock market, 1871-2004

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  • Vicente Esteve
  • Maria Prats

Abstract

We use recent developments on threshold autoregressive models that allow deriving endogenously threshold effects to analyse the evolution of the US stock price-dividend relation over the period 1871 to 2004. More specifically, a mean-reverting dynamic behaviour of the stock price-dividend ratio should be expected once such threshold is reached. Our empirical results showed that significant adjustments would occur when, in a particular year, the stock price-dividend ratio had shown a decrease of more than 8.0% between the previous year and the fourth year before, which implies nonlinearities in the dynamic behaviour of the US stock price-dividend relation.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

Volume (Year): 18 (2008)
Issue (Month): 19 ()
Pages: 1533-1537

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Handle: RePEc:taf:apfiec:v:18:y:2008:i:19:p:1533-1537

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Cited by:
  1. Vicente Esteve & Manuel Navarro-Ibáñez & María A. Prats, 2013. "The present value model of US stock prices revisited: long-run evidence with structural breaks, 1871-2010," Working Papers 04/13, Instituto Universitario de Análisis Económico y Social.

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