On the reversal of return and dividend growth predictability: A tale of two periods |
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Authors: | Long Chen |
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Institution: | Olin Business School, Washington University in St. Louis, Campus Box 1133, 1 Brookings Drive, St. Louis, MO 63130-4899, USA |
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Abstract: | A disconcerting, albeit generally accepted, finding is that aggregate stock returns are predictable by dividend yield but dividend growth is unpredictable. I show that part of this lack of dividend growth predictability stems from how dividend growth is constructed. I then show a dramatic reversal of predictability in the 134 years during 1872–2005: stock returns are largely unpredictable in the first seven decades, but become predictable in the postwar period; dividend growth is strongly predictable in the prewar years but this predictability disappears in the postwar years. New evidence on the predictability of long-run returns and dividend growth is also shown. |
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Keywords: | G12 G11 E44 |
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