Dividend Growth And Return Predictability

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Dividend Growth And Return Predictability

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Author : Gertjan Verdickt
language : en
Publisher:
Release Date : 2019

Dividend Growth And Return Predictability written by Gertjan Verdickt and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019 with categories.

We re-examine dividend growth and return predictability evidence using 165 years of data from the Brussels Stock Exchange. The conventional wisdom holds that time-varying dividend yield is predominately explained by changes in expected returns and that expected dividend growth is only weakly forecastable. However, we find robust dividend growth predictability evidence in every time period. A lack of dividend smoothing is the most important reason for the disconnect with previous evidence. Furthermore, we find return predictability in the post-World War II period when we adjust the dividend yields for changing index composition, business cycle variation and structural breaks. This is explained by a simultaneous increase in equity duration, induced by an increasing importance of growth stocks.

Dividend Yields Dividend Growth And Return Predictability In The Cross Section Of Stocks

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Author : Paulo F. Maio
language : en
Publisher:
Release Date : 2015

Dividend Yields Dividend Growth And Return Predictability In The Cross Section Of Stocks written by Paulo F. Maio and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2015 with categories.

There is a generalized conviction that variation in dividend yields is exclusively related to expected returns and not to expected dividend growth - e.g. Cochrane's presidential address (Cochrane (2011)). We show that this pattern, although valid for the aggregate stock market, is not true for portfolios of small and value stocks, where dividend yields are related mainly to future dividend changes. Thus, the variance decomposition associated with aggregate dividend yield has important heterogeneity in the cross-section of equities. Our results are robust to different forecasting horizons, econometric methodology used (long-horizon regressions or first-order VAR), and an alternative decomposition based on excess returns.

The Dog That Did Not Bark A Defense Of Return Predictability

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Author : John H. Cochrane
language : en
Publisher:
Release Date : 2006

The Dog That Did Not Bark A Defense Of Return Predictability written by John H. Cochrane and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2006 with Dividends categories.

Abstract: To question the statistical significance of return predictability, we cannot specify a null that simply turns off that predictability, leaving dividend growth predictability at its essentially zero sample value. If neither returns nor dividend growth are predictable, then the dividend-price ratio is a constant. If the null turns off return predictability, it must turn on the predictability of dividend growth, and then confront the evidence against such predictability in the data. I find that the absence of dividend growth predictability gives much stronger statistical evidence against the null, with roughly 1-2% probability values, than does the presence of return predictability, which only gives about 20% probability values. I argue that tests based on long-run return and dividend growth regressions provide the cleanest and most interpretable evidence on return predictability, again delivering about 1-2% probability values against the hypothesis that returns are unpredictable. I show that Goyal and Welch's (2005) finding of poor out-of-sample R2 does not reject return forecastability. Out-of-sample R2 is poor even if all dividend yield variation comes from time-varying expected returns

Stock Return Dividend Growth And Consumption Growth Predictability Across Markets And Time

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Author : David G. McMillan
language : en
Publisher:
Release Date : 2014

Stock Return Dividend Growth And Consumption Growth Predictability Across Markets And Time written by David G. McMillan and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2014 with categories.

This paper links variation in the predictive regressions for stock returns, dividend growth and consumption growth to economic and market factors. The nature of these links can reveal whether movement in asset prices occurs primarily through the discount rate (risk-free rate or risk premium) or cash flow (economic conditions) channel, while they also help explain the mixed results for predictability reported in the literature. Variation is examined through cross-sectional regressions across fifteen markets and over time using rolling regressions. The cross-sectional and time-varying parameters are regressed against output growth, interest rates and inflation as well as market variables using fixed effects panel as well as both OLS and logit approaches. Panel and time-series predictive regressions based on two approaches that seek to identify periods of high expected returns (high risk premium) are also considered. The key implication for asset pricing is that although movement occurs through both channels, stock return predictability is more dominated by the discount rate channel and consumption growth predictability more so by the cash flow channel. Intuitively, such a difference may arise as investors and households rebalance their asset holdings and consumption at different speeds. There is also some evidence of money illusion through the inflation variable.

Testing Return Predictability With The Dividend Growth Equation

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Author : Erik Hjalmarsson
language : en
Publisher:
Release Date : 2019

Testing Return Predictability With The Dividend Growth Equation written by Erik Hjalmarsson and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019 with categories.

Time Varying Predictability For Stock Returns Dividend Growth And Consumption Growth

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Author : David G. McMillan
language : en
Publisher:
Release Date : 2014

Time Varying Predictability For Stock Returns Dividend Growth And Consumption Growth written by David G. McMillan and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2014 with categories.

Using a state-space model, this paper examines time-variation in the predictive regressions for stock returns, dividend growth and consumption growth. Moreover, we linked time-variation explicitly to movements in economic factors that can account for risk and cash flow. Results support the view that stock return predictability is enhanced when risk is high (negative growth, higher volatility and positive growth/return covariance). In contrast, dividend growth and consumption growth predictability is enhanced during economic expansions. These results are supported by sub-sample analysis and a VAR approach. Furthermore, these latter exercises may uncover differences in the stock return predictability relationship when viewed over different time horizons. Overall, the paper contributes to the literature by highlighting the different nature of returns predictability, which arises largely through the risk channel and dividend and consumption growth predictability, which arise through the cash flow channel.

Stock Return And Dividend Growth Predictability Across The Business Cycle

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Author : Stig Vinther Møller
language : en
Publisher:
Release Date : 2015

Stock Return And Dividend Growth Predictability Across The Business Cycle written by Stig Vinther Møller and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2015 with categories.

This paper develops an extension of Cochrane's (2008) joint hypothesis framework by allowing the coefficients to depend on the state of the economy. For recessions the results are clear-cut. Dividend yields vary entirely due to return predictability. However, in expansions, the "dog that did not bark" effect is present with respect to both return and dividend growth predictability. Dividend yields vary much less during stable periods of economic booms and returns and dividend growth seem only weakly predictable.

Dividend Momentum And Stock Return Predictability

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Author : Juan Antolín-Díaz
language : en
Publisher:
Release Date : 2021

Dividend Momentum And Stock Return Predictability written by Juan Antolín-Díaz and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2021 with Autoregression (Statistics) categories.

A long tradition in macro-finance studies the joint dynamics of aggregate stock returns and dividends using vector autoregressions (VARs), imposing the cross-equation restrictions implied by the Campbell-Shiller (CS) identity to sharpen inference. We take a Bayesian perspective and develop methods to draw from any posterior distribution of a VAR that encodes a priori skepticism about large amounts of return predictability while imposing the CS restrictions. In doing so, we show how a common empirical practice of omitting dividend growth from the system amounts to imposing the extra restriction that dividend growth is not persistent. We highlight that persistence in dividend growth induces a previously overlooked channel for return predictability, which we label "dividend momentum." Compared to estimation based on OLS, our restricted informative prior leads to a much more moderate, but still significant, degree of return predictability, with forecasts that are helpful out-of-sample and realistic asset allocation prescriptions with Sharpe ratios that out-perform common benchmarks.

Essays On Return Predictability And Yield Factors

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Author : Xuyang Ma
language : en
Publisher:
Release Date : 2014

Essays On Return Predictability And Yield Factors written by Xuyang Ma and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2014 with categories.

This dissertation includes three chapters in which the first two are on return predictability and the third is on yield curve and yield factors. The abstract of each of them is as follows: 1), This paper proposes using capital gains instead of total returns in return predictability tests. Total return predictability can be inferred from capital gain predictability since total returns with dividends are highly correlated with returns based on capital gains only. An exact linear relationship exists among log dividend growth, log capital gain and log dividend price ratio. This exact linear relationship has similar implication as the Campbell-Shiller (1988) linear approximation but is more precise and easier for predictability tests. I verify the standard empirical findings on return predictability using capital gain predictability. Separation of price change and dividend change also leads to a new finding: shocks to dividend growth is shown to have significant positive correlation with shocks to dividend price ratio in the vector autoregressive regression (VAR) rather than close to zero as shown in previous literature. 2), This paper tests the return predictability of the cyclical and trend components in the log dividend price ratio. The log dividend ratio is found to have a near-unit root trend factor if the expectation of the future discount factor is highly persistent. We use Bayesian analysis and the Kalman filter to extract the strictly stationary and near-random-walk components in the log dividend price ratio. The extracted cyclical process can predict one-year ahead total returns during the post-war period and one-year ahead dividend growth rates during the pre-war and war period with notable R^2. We also demonstrate a reverse of predictability: returns become more predictable while dividend growth rates become more unpredictable. 3), This paper examines the fourth principal component of the yields matrix, which is largely ignored in macro-finance forecasting applications, in the context of predicting excess bond returns. Using yields data from the Fama-Bliss and the Federal Reserve, we present the significant in-sample and out-of-sample predictive power of models including the fourth yield factor. Additionally, the "return-forecasting factor" in Cochrane and Piazzesi (2005) is shown to be a restricted linear combination of all yield factors and to be highly correlated with the second and fourth factors. We interpret the fourth yield factor as a factor representing "S-shape" (the shape of a sigmoid curve) and demonstrate the connection between the S-shape factor and the yield curve.

Predicting Stock Returns

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Author : David G McMillan
language : en
Publisher: Springer
Release Date : 2017-11-30

Predicting Stock Returns written by David G McMillan and has been published by Springer this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017-11-30 with Business & Economics categories.

This book provides a comprehensive analysis of asset price movement. It examines different aspects of stock return predictability, the interaction between stock return and dividend growth predictability, the relationship between stocks and bonds, and the resulting implications for asset price movement. By contributing to our understanding of the factors that cause price movement, this book will be of benefit to researchers, practitioners and policy makers alike.