Reevaluation on the Long-Run Price-Dividend and Price-Earnings Relation in Predicting Expected Return

Jonathan Ohn () and Jan Harren
Additional contact information
Jonathan Ohn: Commonwealth University of Pennsylvania
Jan Harren: University of Münster

A chapter in Innovations in Finance, 2026, pp 41-48 from Springer

Abstract: Abstract We examine the relationship between (1) stock price and dividends and (2) stock price and earnings, and its role in forecasting expected returns for S&P 500 stocks. Johansen’s test reveals cointegration for both (1) between price and dividend and (2) between price and earnings, for the entire period, 1871–2023, and two subperiods, 1945–1990 and 1991–2023. The estimation results on autoregressive error-correction model with the price-dividend relation show a significant role of the cointegration relation in forecasting expected return of S&P 500 stocks for all periods, while the model with the price-earnings relation shows a significant role only in the period 1945–2023 when more than 80% of S&P 500 stocks and NYSE stocks consistently paid dividends. Contrary to Miller and Modigliani (Journal of Business :411-, 1961), dividends appear to significantly affect stock prices and firm value. The price-dividend relation appears to be consistently stronger and shows a more effective role in predicting expected return of S&P 500 stocks than the price-earnings relation.

Keywords: Price; Return; Dividends; Earnings; Cointegration; Reversion (search for similar items in EconPapers)
JEL-codes: D8 E37 G14 G35 (search for similar items in EconPapers)
Date: 2026
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:prbchp:978-3-032-19314-8_5

Ordering information: This item can be ordered from
http://www.springer.com/9783032193148

DOI: 10.1007/978-3-032-19314-8_5

Access Statistics for this chapter

More chapters in Springer Proceedings in Business and Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().