Disappearing dividends: Implications for the dividend-price ratio and return predictability

Research output: Contribution to journalArticle

5 Citations (Scopus)

Abstract

The conventional dividend-price ratio is highly persistent, and the literature reports mixed evidence on its role in predicting stock returns. We argue that the decreasing number of firms with a traditional dividend-payout policy is responsible for these results, and develop a model in which the long-run relationship between the dividends and stock price is time varying. An adjusted dividend-price ratio that accounts for the time-varying long-run relationship is considerably less persistent. Furthermore, the predictive regression model that employs the adjusted dividend-price ratio as a regressor outperforms the random-walk model. These results are robust with respect to the firm size.

Original languageEnglish
Pages (from-to)933-952
Number of pages20
JournalJournal of Money, Credit and Banking
Volume45
Issue number5
DOIs
Publication statusPublished - 2013 Aug 1

Fingerprint

Dividends
Return predictability
Long-run relationship
Time-varying
Firm size
Regression model
Dividend payout
Random walk model
Payout policy
Predictive regressions
Stock prices
Stock returns

Keywords

  • Adjusted dividend-price ratio
  • Disappearing dividends
  • Stock return predictability
  • Time-varying cointegration vector

ASJC Scopus subject areas

  • Finance
  • Accounting
  • Economics and Econometrics

Cite this

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title = "Disappearing dividends: Implications for the dividend-price ratio and return predictability",
abstract = "The conventional dividend-price ratio is highly persistent, and the literature reports mixed evidence on its role in predicting stock returns. We argue that the decreasing number of firms with a traditional dividend-payout policy is responsible for these results, and develop a model in which the long-run relationship between the dividends and stock price is time varying. An adjusted dividend-price ratio that accounts for the time-varying long-run relationship is considerably less persistent. Furthermore, the predictive regression model that employs the adjusted dividend-price ratio as a regressor outperforms the random-walk model. These results are robust with respect to the firm size.",
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