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Are there threshold effects in the stock price-dividend relation? The case of the US stock market, 1871-2004

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  • Vicente Esteve
  • Maria Prats

Abstract

We use recent developments on threshold autoregressive models that allow deriving endogenously threshold effects to analyse the evolution of the US stock price-dividend relation over the period 1871 to 2004. More specifically, a mean-reverting dynamic behaviour of the stock price-dividend ratio should be expected once such threshold is reached. Our empirical results showed that significant adjustments would occur when, in a particular year, the stock price-dividend ratio had shown a decrease of more than 8.0% between the previous year and the fourth year before, which implies nonlinearities in the dynamic behaviour of the US stock price-dividend relation.

Suggested Citation

  • Vicente Esteve & Maria Prats, 2008. "Are there threshold effects in the stock price-dividend relation? The case of the US stock market, 1871-2004," Applied Financial Economics, Taylor & Francis Journals, vol. 18(19), pages 1533-1537.
  • Handle: RePEc:taf:apfiec:v:18:y:2008:i:19:p:1533-1537
    DOI: 10.1080/09603100701720369
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    References listed on IDEAS

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    1. Paul R. Krugman, 1987. "Trigger Strategies and Price Dynamics in Equity and Foreign Exchange Markets," NBER Working Papers 2459, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Vicente Esteve & Manuel Navarro-Ibáñez & María A. Prats, 2013. "The present value model of US stock prices revisited: long-run evidence with structural breaks, 1871-2010," Working Papers 04/13, Instituto Universitario de Análisis Económico y Social.
    2. Vicente Esteve & Manuel Navarro-Ibáñez & María A. Prats, 2013. "The present value model of U.S. stock prices revisited: long-run evidence with structural breaks, 1871-2010," Working Papers 1305, Department of Applied Economics II, Universidad de Valencia.

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