Understanding time-varying short-horizon predictability✰

Yacine Hammami and Jie Zhu

Finance Research Letters, 2020, vol. 32, issue C

Abstract: Time-varying return predictability should stem either from time-varying dividend growth predictability or from time-varying dividend yield autocorrelation. The decomposition results show that the bulk of the variation in return predictability is due to its negative correlation with time-varying dividend yield autocorrelation, which is in turn positively correlated with investor sentiment. Using a linear regression based on these results, we confirm a significantly negative relation between investor sentiment and stock return predictability, after controlling for macroeconomic factors, dividend growth, and structural breaks. These findings suggest that investor sentiment is an important determinant of time-varying short-horizon predictability.

Keywords: Stock return predictability; Dividend yield persistency; Investor sentiment (search for similar items in EconPapers)
JEL-codes: C12 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 (3)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1544612318304264
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:finlet:v:32:y:2020:i:c:s1544612318304264

DOI: 10.1016/j.frl.2019.01.009

Access Statistics for this article

Finance Research Letters is currently edited by R. Gençay

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