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Four Centuries of Return Predictability

Author

Listed:
  • Golez, Benjamin

    (University of Notre Dame)

  • Koudijs, Peter

    (Stanford University)

Abstract

We analyze four centuries of stock prices and dividends in the Dutch, English, and U.S. market. With the exception of the post-1945 period, the dividend-to-price ratio is stationary and predicts returns throughout all four centuries. "Excess volatility" is thus a pervasive feature of financial markets. The dividend-to-price ratio also predicts dividend growth rates in all but the most recent period. Cash-flows were therefore much more important for price movements before 1945, and the dominance of discount rate news is a relatively recent phenomenon. This is consistent with the increased duration of the stock market in the recent period.

Suggested Citation

  • Golez, Benjamin & Koudijs, Peter, 2015. "Four Centuries of Return Predictability," Research Papers 3259, Stanford University, Graduate School of Business.
    • Handle: RePEc:ecl:stabus:3259
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    File URL: http://www.gsb.stanford.edu/faculty-research/working-papers/four-centuries-return-predictability
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    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative

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