On the Predictability of Japanese Stock Returns Using Dividend Yield |
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Authors: | Kohei Aono Tokuo Iwaisako |
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Institution: | 1.College of Business Administration,Ritsumeikan University,Kusatsu, Shiga,Japan;2.Policy Research Institute, Ministry of Finance,Government of Japan,Chiyoda-ku, Tokyo,Japan;3.Institute of Economic Research,Hitotsubashi University,Kunitachi, Tokyo,Japan |
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Abstract: | The aim of this paper is to provide a critical and comprehensive reexamination of empirical evidence on the ability of the
dividend yield to predict Japanese stock returns. Our empirical results suggest that in general, the predictability is weak.
However, (1) if the bubble economy period (1986–1998), during which dividend yields were persistently lower than the historical
average, is excluded from the sample, and (2) if positive autocorrelation in monthly aggregate returns is taken into account,
there is some evidence that the log dividend yield is indeed useful in forecasting future stock returns. More specifically,
the log dividend yield contributes to predicting monthly stock returns in the sample after 1990 and when lagged stock returns
are included simultaneously. |
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Keywords: | |
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