Common Divisors,Payout Persistence,and Return Predictability

In the finance and accounting literature, the use of a common divisor in the dependent and independent variables of ordinary least‐squares regressions is commonplace. What goes less recognized, however, is that their use induces spurious correlation between the regression variables and invalidates standard testing procedures. This paper analyses the common divisor problem by outlining analytical results concerning the expected R² and providing a simulation procedure that generates test statistics from which critical values can be drawn. To illustrate the procedure, we re‐investigate payout yield return predictability findings that have appeared in the literature and show that the results are spurious.     

Trends in the Intergenerational Elasticity of Family Income in the United States

This paper asks whether the degree to which our incomes resemble our parents’ incomes has changed over time. After comparing various methods of correcting for differences in the ages at which successive birth cohorts are observed, and correcting for sample attrition, I find no evidence of a linear trend in the intergenerational elasticity of family income for those born into the Panel Study of Income Dynamics between 1952 and 1975 and observed as adults between 1977 and 2000.