IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/46350.html
   My bibliography  Save this paper

Demographics and the Long-Horizon Returns of Dividend-Yield Strategies in the US

Author

Listed:
  • Lee, King Fuei

Abstract

This paper investigates the relationship between demographic changes and the long-run returns of dividend-yield investment strategies in the US. We hypothesise that in a world where components of wealth are mentally treated as being non-fungible, the preference for high dividend-paying stocks by older investors means that the excess returns of high dividend-yielding stocks, relative to other stocks, should be positively related to demographic clientele variation. In particular, we find that, as consistent with the behavioural life-cycle hypothesis, the long-run returns of dividend-yield investment strategies are positively driven by changes in the proportion of the older population. Our results are robust when controlled for the Fama-French factors, inflation rate, consumption growth rate, interest rates, time trend and alternative definitions of both dividend-yield strategies as well as demographic variation.

Suggested Citation

  • Lee, King Fuei, 2011. "Demographics and the Long-Horizon Returns of Dividend-Yield Strategies in the US," MPRA Paper 46350, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:46350
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/46350/1/MPRA_paper_46350.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. James M. Poterba, 2004. "Impact of population aging on financial markets in developed countries," Economic Review, Federal Reserve Bank of Kansas City, vol. 89(Q IV), pages 43-53.
    2. repec:bla:jfinan:v:53:y:1998:i:6:p:1975-1999 is not listed on IDEAS
    3. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
    4. James M. Poterba, 2004. "The impact of population aging on financial markets," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, issue Aug, pages 163-216.
    5. Kothari, S. P. & Shanken, Jay, 1997. "Book-to-market, dividend yield, and expected market returns: A time-series analysis," Journal of Financial Economics, Elsevier, vol. 44(2), pages 169-203, May.
    6. Gombola, Michael J & Liu, Feng-Ying, 1993. "Considering Dividend Stability in the Relation between Dividend Yields and Stock Returns," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 16(2), pages 139-150, Summer.
    7. Christie, William G., 1990. "Dividend yield and expected returns *1: The zero-dividend puzzle," Journal of Financial Economics, Elsevier, vol. 28(1-2), pages 95-125.
    8. Gombola, Michael J & Liu, Feng-Ying L, 1993. "Dividend Yields and Stock Returns: Evidence of Time Variation between Bull and Bear Markets," The Financial Review, Eastern Finance Association, vol. 28(3), pages 303-327, August.
    9. repec:bla:jfinan:v:53:y:1998:i:6:p:2029-2057 is not listed on IDEAS
    10. Jamal, A. M. M. & Quayes, Shakil, 2004. "Demographic structure and stock prices," Economics Letters, Elsevier, vol. 84(2), pages 211-215, August.
    11. Fama, Eugene F. & French, Kenneth R., 1988. "Dividend yields and expected stock returns," Journal of Financial Economics, Elsevier, vol. 22(1), pages 3-25, October.
    12. Hodrick, Robert J, 1992. "Dividend Yields and Expected Stock Returns: Alternative Procedures for Inference and Measurement," The Review of Financial Studies, Society for Financial Studies, vol. 5(3), pages 357-386.
    13. James M. Poterba, 2001. "Demographic Structure And Asset Returns," The Review of Economics and Statistics, MIT Press, vol. 83(4), pages 565-584, November.
    14. Newey, Whitney & West, Kenneth, 2014. "A simple, positive semi-definite, heteroscedasticity and autocorrelation consistent covariance matrix," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 33(1), pages 125-132.
    15. Keim, Donald B., 1985. "Dividend yields and stock returns: Implications of abnormal January returns," Journal of Financial Economics, Elsevier, vol. 14(3), pages 473-489, September.
    16. du Jardin, Philippe & Séverin, Eric, 2011. "Dividend policy," MPRA Paper 44382, University Library of Munich, Germany.
    17. Mark E. Wohar & David E. Rapach, 2005. "Valuation ratios and long-horizon stock price predictability," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(3), pages 327-344.
    18. Morgan, Gareth & Thomas, Stephen, 1998. "Taxes, dividend yields and returns in the UK equity market," Journal of Banking & Finance, Elsevier, vol. 22(4), pages 405-423, May.
    19. Bakshi, Gurdip S & Chen, Zhiwu, 1994. "Baby Boom, Population Aging, and Capital Markets," The Journal of Business, University of Chicago Press, vol. 67(2), pages 165-202, April.
    20. Fama, Eugene F & French, Kenneth R, 1992. "The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-465, June.
    21. Fama, Eugene F., 1998. "Market efficiency, long-term returns, and behavioral finance," Journal of Financial Economics, Elsevier, vol. 49(3), pages 283-306, September.
    22. Malcolm Baker & Stefan Nagel & Jeffrey Wurgler, 2007. "The Effect of Dividends on Consumption," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 38(1), pages 231-292.
    23. Fama, Eugene F. & Schwert, G. William, 1977. "Asset returns and inflation," Journal of Financial Economics, Elsevier, vol. 5(2), pages 115-146, November.
    24. Geske, Robert & Roll, Richard, 1983. "The Fiscal and Monetary Linkage between Stock Returns and Inflation," Journal of Finance, American Finance Association, vol. 38(1), pages 1-33, March.
    25. Shefrin, Hersh M & Thaler, Richard H, 1988. "The Behavioral Life-Cycle Hypothesis," Economic Inquiry, Western Economic Association International, vol. 26(4), pages 609-643, October.
    26. Goyal, Amit, 2004. "Demographics, Stock Market Flows, and Stock Returns," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 39(1), pages 115-142, March.
    27. Ali Anari & James Kolari, 2001. "Stock Prices And Inflation," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 24(4), pages 587-602, December.
    28. Lee, King Fuei, 2011. "Demographics, dividend clienteles and the dividend premium," The Quarterly Review of Economics and Finance, Elsevier, vol. 51(4), pages 368-375.
    29. Fama, Eugene F. & French, Kenneth R., 1993. "Common risk factors in the returns on stocks and bonds," Journal of Financial Economics, Elsevier, vol. 33(1), pages 3-56, February.
    30. John R. Graham & Alok Kumar, 2006. "Do Dividend Clienteles Exist? Evidence on Dividend Preferences of Retail Investors," Journal of Finance, American Finance Association, vol. 61(3), pages 1305-1336, June.
    31. Boudoukh, Jacob & Richardson, Matthew, 1993. "Stock Returns and Inflation: A Long-Horizon Perspective," American Economic Review, American Economic Association, vol. 83(5), pages 1346-1355, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lee, King Fuei, 2013. "Demographics and the long-horizon returns of dividend-yield strategies," The Quarterly Review of Economics and Finance, Elsevier, vol. 53(2), pages 202-218.
    2. Eero Pätäri & Timo Leivo, 2017. "A Closer Look At Value Premium: Literature Review And Synthesis," Journal of Economic Surveys, Wiley Blackwell, vol. 31(1), pages 79-168, February.
    3. Antje Henne & Sebastian Ostrowski & Peter Reichling, 2007. "Dividend Yield and Stability versus Performance at the German Stock Market," FEMM Working Papers 07017, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    4. Jiang, Xiaoquan & Lee, Bong-Soo, 2007. "Stock returns, dividend yield, and book-to-market ratio," Journal of Banking & Finance, Elsevier, vol. 31(2), pages 455-475, February.
    5. Bampinas, Georgios & Panagiotidis, Theodore, 2016. "Hedging inflation with individual US stocks: A long-run portfolio analysis," The North American Journal of Economics and Finance, Elsevier, vol. 37(C), pages 374-392.
    6. Bao, Jack & Hou, Kewei & Zhang, Shaojun, 2023. "Systematic default and return predictability in the stock and bond markets," Journal of Financial Economics, Elsevier, vol. 149(3), pages 349-377.
    7. Hoechle, Daniel & Schmid, Markus & Zimmermann, Heinz, 2012. "Decomposing Performance," Working Papers on Finance 1216, University of St. Gallen, School of Finance, revised Nov 2015.
    8. David Hirshleifer, 2001. "Investor Psychology and Asset Pricing," Journal of Finance, American Finance Association, vol. 56(4), pages 1533-1597, August.
    9. Tim Bollerslev & George Tauchen & Hao Zhou, 2009. "Expected Stock Returns and Variance Risk Premia," The Review of Financial Studies, Society for Financial Studies, vol. 22(11), pages 4463-4492, November.
    10. Jurdi, Doureige & Kim, Jae, 2019. "Predicting the U.S. Stock Market Return: Evidence from the Improved Augmented Regression Method," MPRA Paper 94028, University Library of Munich, Germany.
    11. Greg Filbeck & Sue Visscher, 1997. "Dividend yield strategies in the British stock market," The European Journal of Finance, Taylor & Francis Journals, vol. 3(4), pages 277-289.
    12. Maio, Paulo & Santa-Clara, Pedro, 2012. "Multifactor models and their consistency with the ICAPM," Journal of Financial Economics, Elsevier, vol. 106(3), pages 586-613.
    13. Li, Yan & Ng, David T. & Swaminathan, Bhaskaran, 2013. "Predicting market returns using aggregate implied cost of capital," Journal of Financial Economics, Elsevier, vol. 110(2), pages 419-436.
    14. Ekaterini Panopoulou & Sotiria Plastira, 2014. "Fama French factors and US stock return predictability," Journal of Asset Management, Palgrave Macmillan, vol. 15(2), pages 110-128, April.
    15. Yu, Jialin, 2011. "Disagreement and return predictability of stock portfolios," Journal of Financial Economics, Elsevier, vol. 99(1), pages 162-183, January.
    16. Roel van Elk & Marc van der Steeg & Dinand Webbink, 2013. "The effects of a special program for multi-problem school dropouts on educational enrolment, employment and criminal behaviour; Evidence from a field experiment," CPB Discussion Paper 241.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    17. Teresa Corzo Santamaría & Dolores Lagoa-Varela & Inés Portillo García, 2014. "Ten years of dividend yields in Europe: 2000–2009," Journal of Asset Management, Palgrave Macmillan, vol. 15(2), pages 83-91, April.
    18. Clemens Sialm, 2009. "Tax Changes and Asset Pricing," American Economic Review, American Economic Association, vol. 99(4), pages 1356-1383, September.
    19. Kedar-Levy, Haim, 2014. "The potential effect of US baby-boom retirees on stock returns," The North American Journal of Economics and Finance, Elsevier, vol. 30(C), pages 106-121.
    20. Xia, Yihong, 2000. "Learning About Predictability: The Effects of Parameter Uncertainty on Dynamic Asset Allocation," University of California at Los Angeles, Anderson Graduate School of Management qt3167f8mz, Anderson Graduate School of Management, UCLA.

    More about this item

    Keywords

    Dividend yield; demographics; investment style; investment strategy;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:46350. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.