Advanced Search
MyIDEAS: Login to save this paper or follow this series

Disappearing Dividends: Implications for the Dividend-Price Ratio and Return Predictability

Contents:

Author Info

  • Chang-Jin Kim

    ()
    (University of Washington and Korea University)

  • Cheolbeom Park

    ()
    (Department of Economics, Korea University, Seoul, Republic of Korea)

Abstract

The conventional dividend-price ratio is highly persistent, and the literature reports mixed evidence on its role in predicting stock returns. In particular, its predictive power seems to be sensitive to the choice of the sample period. We argue that the decreasing number of firms with traditional dividend-payout policy is responsible for these results, and develop a model in which the long-run relationship between the dividends and stock price is time-varying. An adjusted dividend-price ratio that accounts for the time-varying long-run relationship is stationary with considerably less persistence than the conventional dividend-price ratio. Furthermore, the predictive regression model that employs the adjusted dividend-price ratio as a regressor outperforms the random-walk model in terms of long-horizon out-of-sample predictability. These results are robust with respect to the firm size.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://econ.korea.ac.kr/~ri/WorkingPapers/w1205.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Institute of Economic Research, Korea University in its series Discussion Paper Series with number 1205.

as in new window
Length:
Date of creation: 2012
Date of revision:
Handle: RePEc:iek:wpaper:1205

Contact details of provider:
Postal: 1-5-Ga, Anam-dong, Sung buk-ku, Seoul, 136-701
Phone: (82-2)3290-1633
Fax: (82-2) 928-4948
Web page: http://econ.korea.ac.kr/~ri
More information through EDIRC

Related research

Keywords: Stock Return Predictability; Adjusted Dividend-price ratio; Disappearing; Dividends; Time-Varying Cointegration Vector;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. John Y. Campbell & John H. Cochrane, 1994. "By force of habit: a consumption-based explanation of aggregate stock market behavior," Working Papers 94-17, Federal Reserve Bank of Philadelphia.
  2. Park, Joon Y. & Hahn, Sang B., 1999. "Cointegrating Regressions With Time Varying Coefficients," Econometric Theory, Cambridge University Press, Cambridge University Press, vol. 15(05), pages 664-703, October.
  3. Kenneth D. West & Todd Clark, 2006. "Approximately Normal Tests for Equal Predictive Accuracy in Nested Models," NBER Technical Working Papers, National Bureau of Economic Research, Inc 0326, National Bureau of Economic Research, Inc.
  4. Donald Robertson & Stephen Wright, 2006. "Dividends, Total Cash Flow to Shareholders, and Predictive Return Regressions," The Review of Economics and Statistics, MIT Press, vol. 88(1), pages 91-99, February.
  5. Bierens, Herman J. & Martins, Luis F., 2010. "Time-Varying Cointegration," Econometric Theory, Cambridge University Press, Cambridge University Press, vol. 26(05), pages 1453-1490, October.
  6. Gallant, A. Ronald, 1981. "On the bias in flexible functional forms and an essentially unbiased form : The fourier flexible form," Journal of Econometrics, Elsevier, Elsevier, vol. 15(2), pages 211-245, February.
  7. Bossaerts, Peter & Hillion, Pierre, 1999. "Implementing Statistical Criteria to Select Return Forecasting Models: What Do We Learn?," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 12(2), pages 405-28.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Yoosoon Chang & Chang Sik Kim & J. Isaac Miller & Joon Y. Park & Sungkeun Park, 2014. "Time-varying Long-run Income and Output Elasticities of Electricity Demand," Working Papers, Department of Economics, University of Missouri 1409, Department of Economics, University of Missouri.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:iek:wpaper:1205. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kim, Jisoo).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.