The Dog Has Barked for a Long Time: Dividend Growth Is Predictable

Detzel, Andrew L.; Strauss, Jack

doi:10.2139/ssrn.2748378

Cited by 1 publication

(1 citation statement)

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“…Papers explicitly using Cochrane's (2008) approach to test for return predictability include Chen (2009); Engsted and Pedersen (2010); Golez and Koudijs (2018). Related works that consider both return and dividend-growth predictability include, among others, Lettau and Ludvigson (2005); Binsbergen and Koijen (2010); Lacerda and Santa-Clara (2010); Lettau and Ludvigson (2010); Chen et al (2012); Kelly and Pruitt (2013); Golez (2014); Bollerslev et al (2015); Maio and Santa-Clara (2015); Detzel and Strauss (2016). Koijen and Van Nieuwerburgh (2011) provides a review on return and dividend-growth predictability.…”

Section: Introductionmentioning

confidence: 99%

Testing Return Predictability with the Dividend-Growth Equation: An Anatomy of the Dog

Hjalmarsson

Kiss²

2019

SSRN Journal

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The dividend-growth based test of return predictability, proposed by Cochrane [2008, Review of Financial Studies 21, 1533-1575, is similar to a likelihood-based test of the standard return-predictability model, treating the autoregressive parameter of the dividend-price ratio as known. In comparison to standard OLS-based inference, both tests achieve power gains from a strong use of the exact value postulated for the autoregressive parameter. When compared to the likelihood-based test, there are no power advantages for the dividend-growth based test. In common implementations, with the autoregressive parameter set equal to the corresponding OLS estimate, Cochrane's test also suffers from severe size distortions.

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