Demographic Trends, the Dividend-Price Ratio, and the Predictability of Long-Run Stock Market Returns

Carlo Favero (), Arie E. Gozluklu and Andrea Tamoni

Journal of Financial and Quantitative Analysis, 2011, vol. 46, issue 5, 1493-1520

Abstract: This paper documents the existence of a slowly evolving trend in the log dividend-price ratio, DPt, determined by a demographic variable, MYt: the middle-aged to young ratio. Deviations of DPt from this long-run component explain transitory but persistent fluctuations in stock market returns. The relation between MYt and DPt is a prediction of an overlapping generation model. The joint significance of MY and DPt in long-horizon forecasting regressions for market returns explains the mixed evidence on the ability of DPt to predict stock returns and provide a model-based interpretation of statistical corrections for breaks in the mean of this financial ratio.

Date: 2011
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Working Paper: Demographic Trends, the Dividend-Price Ratio and the Predictability of Long-Run Stock Market Returns (2010)
Working Paper: Demographic Trends, the Dividend-Price Ratio and the Predictability of Long-Run Stock Market Returns (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:cup:jfinqa:v:46:y:2011:i:05:p:1493-1520_00

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