Dividend Growth Predictability and the Price-Dividend Ratio

Piatti, Ilaria and Trojani, Fabio Dividend Growth Predictability and the Price-Dividend Ratio. Management Science. (Accepted)

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Asymptotic tests over-reject the null of no predictability in present-value models. We develop a nonparametric testing approach in state space models, implying reliable finite sample inference under weak assumptions on price-dividend ratio and dividend shocks. We find sharp evidence of return predictability in postwar US data, but a less consistent evidence of dividend predictability, which is significant only using cash-ow proxies reflecting information from mergers and acquisitions. These findings reconcile the diverging conclusions of present-value models and common predictive regressions, in a way that is robust to the choice of the predictive variables, the sample period and alternative cash-flow proxies.

Item Type: Article
Keywords: Predictability, Present-value model, State space model, Bootstrap, Likelihood, ratio test, finance
Subject(s): Finance
Date Deposited: 04 Jul 2018 09:44
Last Modified: 14 Sep 2018 10:27
Funders: N/A
URI: http://eureka.sbs.ox.ac.uk/id/eprint/6858

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