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The price-dividend relationship in inflationary and deflationary regimes

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  • Madsen, Jakob B.
  • Milas, Costas

Abstract

This paper suggests that dividends do not reflect permanent earnings of corporations in periods of high inflation and deflation, and therefore the price-dividend relationship, as predicted by Gordon’s dividend-price model, breaks down. Using data for the US and the UK over the period from 1871 to 2002, nonlinear estimates support the prediction of the model.
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Suggested Citation

  • Madsen, Jakob B. & Milas, Costas, 2005. "The price-dividend relationship in inflationary and deflationary regimes," Finance Research Letters, Elsevier, vol. 2(4), pages 260-269, December.
  • Handle: RePEc:eee:finlet:v:2:y:2005:i:4:p:260-269
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    Cited by:

    1. Pierre Giot & Mikael Petitjean, 2009. "Short-term market timing using the bond-equity yield ratio," The European Journal of Finance, Taylor & Francis Journals, vol. 15(4), pages 365-384.
    2. Nagayasu, Jun, 2007. "Putting the dividend-price ratio under the microscope," Finance Research Letters, Elsevier, vol. 4(3), pages 186-195, September.
    3. Giot, Pierre & Petitjean, Mikael, 2007. "The information content of the Bond-Equity Yield Ratio: Better than a random walk?," International Journal of Forecasting, Elsevier, vol. 23(2), pages 289-305.
    4. Coakley, Jerry & Fuertes, Ana-Maria, 2006. "Valuation ratios and price deviations from fundamentals," Journal of Banking & Finance, Elsevier, vol. 30(8), pages 2325-2346, August.

    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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