The term structure of implied dividend yields and expected returns

John Bilson, Sang Baum Kang and Hong Luo

Economics Letters, 2015, vol. 128, issue C, 9-13

Abstract: This paper proposes a new dividend-based S&P 500 Index return predictor, the implied dividend yield term structure (IDYTS). We show that the IDYTS is a “cleaner” predictor than its conventional counterpart, the dividend price ratio (DP), in that the expected return is a linear combination of the level and slope of the term structure. Exploiting non-arbitrage relationships and the forward-looking nature of the options market, we estimate the IDYTS and investigate its index return predictability. The IDYTS outperforms the DP in predictive regressions, and the optimal IDYTS portfolio, constructed by using the IDYTS in a predictive regression, stochastically dominates and yields a higher Sharpe ratio than the DP portfolio.

Keywords: Predictive regression; Dividend yield; Dividend price ratio; Sharpe ratio; Stochastic dominance (search for similar items in EconPapers)
JEL-codes: G11 G12 G17 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0165176515000130
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:ecolet:v:128:y:2015:i:c:p:9-13

DOI: 10.1016/j.econlet.2015.01.003

Access Statistics for this article

Economics Letters is currently edited by Economics Letters Editorial Office

More articles in Economics Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu ().