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Dividends, Total Cash Flow to Shareholders, and Predictive Return Regressions

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  • Donald Robertson

    (University of Cambridge)

  • Stephen Wright

    (Birkbeck College, University of London)

Abstract

This paper provides new evidence on the predictive power of dividend yields for U.S. aggregate stock returns. Following Miller and Modigliani, we construct a measure of the dividend yield that includes all cash flows to shareholders. We show that this alternative cash-flow yield has strong and stable predictive power for returns, and appears robust to a battery of tests that have been proposed in recent critiques of the predictability literature. © 2006 The President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Suggested Citation

  • 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.
  • Handle: RePEc:tpr:restat:v:88:y:2006:i:1:p:91-99
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    References listed on IDEAS

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    Cited by:

    1. Park, Cheolbeom, 2010. "When does the dividend-price ratio predict stock returns?," Journal of Empirical Finance, Elsevier, vol. 17(1), pages 81-101, January.
    2. Demetrios Eliades & Olaf Weeken, 2005. "The stock market and capital accumulation: an application to UK data," Bank of England working papers 251, Bank of England.
    3. Jakob B Madsen & E Philip Davis, 2006. "Equity Prices, Productivity Growth and 'The New Economy'," Economic Journal, Royal Economic Society, vol. 116(513), pages 791-811, July.
    4. Chava, Sudheer & Gallmeyer, Michael & Park, Heungju, 2015. "Credit conditions and stock return predictability," Journal of Monetary Economics, Elsevier, vol. 74(C), pages 117-132.
    5. Chang‐Jin Kim & Cheolbeom Park, 2013. "Disappearing Dividends: Implications for the Dividend–Price Ratio and Return Predictability," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(5), pages 933-952, August.
    6. Larrain, Borja & Yogo, Motohiro, 2008. "Does firm value move too much to be justified by subsequent changes in cash flow," Journal of Financial Economics, Elsevier, vol. 87(1), pages 200-226, January.
    7. Cheolbeom Park, 2006. "The Persistence and Predictive Power of the Dividend-Price Ratio," Departmental Working Papers wp0603, National University of Singapore, Department of Economics.
    8. Carmelo Giaccotto & Alain Krapl, 2014. "Good News and Bad News about Firm-Level Stock Returns of Internationally Exposed Firms," International Review of Finance, International Review of Finance Ltd., vol. 14(4), pages 523-550, December.
    9. Long Chen & Zhi Da & Richard Priestley, 2012. "Dividend Smoothing and Predictability," Management Science, INFORMS, vol. 58(10), pages 1834-1853, October.
    10. Piergiorgio Alessandri & Donald Robertson & Stephen Wright, 2008. "Miller and Modigliani, Predictive Return Regressions and Cointegration," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 70(2), pages 181-207, April.

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