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Testing the predictive power of dividend yields: non-parametric evidence from the G5

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  • Francis Breedon
  • Marco Bianchi
  • Darren Sharma

Abstract

This paper extends US evidence on the ability of current dividend yields to predict future equity returns in the G5 countries. By using non-parametric methods, evidence of a similar non- linear structure is found in all the countries analysed. This casts doubt on the linear framework adopted in earlier studies. The paper also finds that there is a strong relationship between extremes of dividends and future returns (in that very low/high dividends do predict low/high returns whilst intermediate levels of dividends do not). This non-linear structure strengthens the statistical evidence of a relationship between dividend yields and future returns and may help explain why previous studies have found mixed evidence.

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File URL: http://www.bankofengland.co.uk/archive/Documents/historicpubs/workingpapers/1997/wp60.pdf
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Bibliographic Info

Paper provided by Bank of England in its series Bank of England working papers with number 60.

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Date of creation: Apr 1997
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Handle: RePEc:boe:boeewp:60

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Cited by:
  1. Durham, J. Benson, 2001. "Sensitivity analyses of anomalies in developed stock markets," Journal of Banking & Finance, Elsevier, vol. 25(8), pages 1503-1541, August.

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