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Stock return predictability and stationarity of dividend yield

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Listed author(s):
  • Kuang-Liang Chang

    ()

    (Department of Applied Economics, National Chiayi University, Taiwan)

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    Abstract

    This paper first investigates the stationarity of dividend yield and then analyzes the predictive ability of the adjusted dividend yield which removes structural changes and high persistence characteristics. Empirical results have found that the dividend yield follows a mean-reverting process in each regime, and the convergence speed depends on the mean and variance. Moreover, the dividend yield is also global stationary. Finally, the adjusted dividend yield can predict future stock returns, and its predictive ability is time-invariant.

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    File URL: http://www.accessecon.com/Pubs/EB/2012/Volume32/EB-12-V32-I1-P66.pdf
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    Article provided by AccessEcon in its journal Economics Bulletin.

    Volume (Year): 32 (2012)
    Issue (Month): 1 ()
    Pages: 715-729

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    Handle: RePEc:ebl:ecbull:eb-11-00624
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    Keywords: mean reversion; regime switching; stationarity; stock return predictability;

    Find related papers by JEL classification:

    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • G1 - Financial Economics - - General Financial Markets

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    1. Kanas, Angelos & Genius, Margarita, 2005. "Regime (non)stationarity in the US/UK real exchange rate," Economics Letters, Elsevier, vol. 87(3), pages 407-413, June.
    2. Campbell, John Y. & Yogo, Motohiro, 2006. "Efficient tests of stock return predictability," Journal of Financial Economics, Elsevier, vol. 81(1), pages 27-60, July.
    3. Park, Cheolbeom, 2010. "When does the dividend-price ratio predict stock returns?," Journal of Empirical Finance, Elsevier, vol. 17(1), pages 81-101, January.
    4. Kanas, Angelos, 2008. "On real interest rate dynamics and regime switching," Journal of Banking & Finance, Elsevier, vol. 32(10), pages 2089-2098, October.
    5. Francq, C. & Zakoian, J. -M., 2001. "Stationarity of multivariate Markov-switching ARMA models," Journal of Econometrics, Elsevier, vol. 102(2), pages 339-364, June.
    6. Andrew Ang & Geert Bekaert, 2001. "Stock Return Predictability: Is it There?," NBER Working Papers 8207, National Bureau of Economic Research, Inc.
    7. Raybaudi, Marzia & Sola, Martin & Spagnolo, Fabio, 2004. "Red signals: current account deficits and sustainability," Economics Letters, Elsevier, vol. 84(2), pages 217-223, August.
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