Modeling The Dividend-Price Ratio: The Role Of Fundamentals Using A Regime-Switching Approach
AbstractUsing annual data over the post-World War I-period, we estimate a fundamentals-based empirical model for the dividend-price ratio of Danish stocks. The key fundamentals-variable is a time-varying discount rate, decomposed into time-varying measures for the growth-adjusted real interest rate and the risk premium on stocks. In addition, the model includes real dividends and the lagged dividend-price ratio as explanatory variables. Results show that the model suffers from structural breaks over the sample. Using a two-state regime-switching approach to capture non-modeled shifts in the economic environment, we find that all fundamentals are highly significant in at least one regime and, moreover, obtain a good fit. The model identifies two very persistent regimes characterized by a ‘low’, respectively, ‘high’ dividend-price ratio.
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Bibliographic InfoPaper provided by Copenhagen Business School, Department of Economics in its series Working Papers with number 12-2000.
Length: 39 pages
Date of creation: 12 Jul 2001
Date of revision:
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Postal: Department of Economics, Copenhagen Business School, Solbjerg Plads 3 C, 5. sal, DK-2000 Frederiksberg, Denmark
Phone: 38 15 25 75
Fax: 38 15 34 99
Web page: http://www.cbs.dk/departments/econ/
More information through EDIRC
Dividend-price ration; Stocks; Denmark;
Find related papers by JEL classification:
- G19 - Financial Economics - - General Financial Markets - - - Other
This paper has been announced in the following NEP Reports:
- NEP-FMK-2001-07-17 (Financial Markets)
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