Stock prices, dividends, and structural changes in the long-term: The case of U.S

Vicente Esteve, Manuel Navarro-Ibáñez () and Maria Prats

The North American Journal of Economics and Finance, 2020, vol. 52, issue C

Abstract: According to several empirical studies, the Present Value model fails to explain the behaviour of stock prices in the long-run. In this paper we consider the possibility that a linear cointegrated regression model with multiple structural changes would provide a better empirical description of the Present Value model of U.S. stock prices. Our methodology is based on instability tests recently proposed in Kejriwal and Perron (2008, 2010) as well as the cointegration tests developed in Arai and Kurozumi (2007) and Kejriwal (2008). The results obtained are consistent with the existence of linear cointegration between the log stock prices and the log dividends. However, our empirical results also show that the cointegrating relationship has changed over time. In particular, the Kejriwal-Perron tests for testing multiple structural breaks in cointegrated regression models suggest a model of three regimes.

Keywords: Present value model; Stock prices; Dividends; Cointegration; Multiple structural breaks (search for similar items in EconPapers)
JEL-codes: C22 G12 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1062940819302633
Full text for ScienceDirect subscribers only

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:eee:ecofin:v:52:y:2020:i:c:s1062940819302633

DOI: 10.1016/j.najef.2019.101126

Access Statistics for this article

The North American Journal of Economics and Finance is currently edited by Hamid Beladi

More articles in The North American Journal of Economics and Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().