Dividend Growth Predictability and the Price-Dividend Ratio

Piatti, Ilaria; Trojani, Fabio

doi:10.2139/ssrn.2077381

Cited by 7 publications

(4 citation statements)

References 56 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Binsbergen et al (2010), using the present-value model framework, show that US dividends are predictable by the whole history of dividend yields. Piatti and Trojani (2019) apply bootstrap tests to the monthly US stock market data for the period 1946 to 2010, and confirm that the postwar return (dividend) predictability evidence in benchmark present-value models is similarly strong (weak) as in standard predictive regression tests, consistently with the R. Cont. Fin.…”

Section: Literature Reviewmentioning

confidence: 58%

“…In the last decades, many authors have studied the predictability of returns and dividend growth by the dividend yield [see, for instance, Ferson and Harvey (1991), Campbell and Ammer (1993), Cochrane (2001Cochrane ( , 2008, Lettau and Ludvigson (2005), Lettau and Van Nieuwerburgh (2007), and, more recently, Maio and Santa-Clara (2015), Golez and Koudijs (2018), Jagannathan and Liu (2019), le Bris, Goetzmann, and Pouget (2019), and Piatti and Trojani (2019)]. The main finding is that the dividend yield strongly predicts stock returns, but it does not predict dividend growth rates.…”

Section: Literature Reviewmentioning

confidence: 99%

See 1 more Smart Citation

International evidence on stock returns and dividend growth predictability using dividend yields

Monteiro

Sebastião

Silva

2020

Rev. contab. finanç.

View full text Add to dashboard Cite

This paper examines stock returns and dividend growth predictability using dividend yields in seven developed markets: United States of America (US), United Kingdom (UK), Japan, France, Germany, Italy, and Spain. Altogether, these countries account for around 85% of the Morgan Stanley Capital International (MSCI) World Index. The use of the long time series with up-to-date data allows the comparison not only between countries, but also across periods, putting into perspective the existence or not of noticeable changes since the 1980’s. The majority of the literature on this topic is US-centered. This emphasis on the US is even more pronounced when it comes to examining the relationship between the dividend unpredictability and dividend smoothing. There is also the need to know if the relationships already documented for the post-Second World War (WWII) period still hold during the last three decades, when stock markets were subjected to a high level of turbulence worldwide. The relationship between dividend yields and returns and dividend growth is central to understand the functioning of capital markets, and has considerable implications for capital asset pricing and investment strategies. Overall, the results show that even for developed capital markets there is no clear pattern on the predictive ability of dividend yields on stock returns and dividend growth, instead these relationships seem to be time-dependent and country-specific. For each country, the predictive ability of the dividend yield is examined in a first-order structural VAR framework by applying bootstrap significance tests and the degree of dividend smoothing is assessed using four partial-adjustment models for the dividend behavior. Additionally, an out-of-sample analysis is conducted using pseudo-R2 and a normal mean squared prediction error (MSPE) adjusted statistic. For the post-WWII period, returns are predictable, but dividends are unpredictable in the US and the UK, while the opposite pattern is observed in Spain and Italy. In Germany, there is some evidence of short-term predictability for both returns and dividends, while in France only returns are predictable. In Japan, neither variable can be forecasted. The dividend smoothing results show that dividends are more persistent in the US and the UK, however, there is no clear connection between dividend smoothness and predictability for the other countries. An important conclusion to retain from the out-of-sample analysis is that the predictability of returns after the WWII, especially present in the US, appeared to have been missing in the last three decades, most probably due to the turmoil experienced by the stock markets during this last period.

show abstract

Section: Literature Reviewmentioning

confidence: 58%

Section: Literature Reviewmentioning

confidence: 99%

International evidence on stock returns and dividend growth predictability using dividend yields

Monteiro

Sebastião

Silva

2020

Rev. contab. finanç.

View full text Add to dashboard Cite

show abstract

“…The block resampling scheme follows the approach described above in Section B1 and again serves to account for cross-sectional and time-series dependencies. We start by setting the number of simulations to S = 200 and the number of bootstrap iterations to B = 99, following the choice of Piatti and Trojani (2014) in a similar double-bootstrap exercise. We show that the results are similar when we increase the number of simulations to S = 400 and the number of bootstrap iterations to B = 198.…”

Section: B2 Finite-sample Properties Of the Block Bootstrap Proceduresmentioning

confidence: 99%

What Is the Expected Return on a Stock?

Martin

Wagner

2019

The Journal of Finance

158

View full text Add to dashboard Cite

We derive a formula for the expected return on a stock in terms of the risk‐neutral variance of the market and the stock's excess risk‐neutral variance relative to that of the average stock. These quantities can be computed from index and stock option prices; the formula has no free parameters. The theory performs well empirically both in and out of sample. Our results suggest that there is considerably more variation in expected returns, over time and across stocks, than has previously been acknowledged.

show abstract

“…Using restrictions from present value models similar to those of Campbell and Shiller (1988), several recent studies analyze the joint dynamics of expected returns and dividend growth (van Binsbergen and Koijen (2010), Kelly and Pruitt (2013), Piatti and Trojani (2013), Golez (2014), and Bollerslev et al (2015)). Most of these find some evidence of dividend-growth predictability and the first two find out-of-sample evidence of dividend-growth predictability.…”

Section: Related Literaturementioning

confidence: 99%