EconPapers    
Economics at your fingertips  
 

An alternative view of the US price–dividend ratio dynamics

Juan M. Londono (), Marta Regúlez and Jesús Vázquez

International Review of Economics & Finance, 2015, vol. 38, issue C, 291-307

Abstract: The price–dividend (PD) ratio must be stationary for the present value model to be valid. However, several market episodes show stock prices drifting apart from dividends. This paper investigates PD ratio stationarity by considering a Markov-switching model featuring an asymmetric adjustment speed toward a unique attractor. A three-regime model displays the best regime identification. Within this specification, the post-war period is mainly characterized by a stationary state featuring slow reversion to a high attractor, the growing PD ratio period of 1996–2000 features a high-reversion stationary regime, and the subprime crisis episode is classified into a temporary nonstationary regime.

Keywords: Markov regime switching; Price–dividend ratio; Stationarity (search for similar items in EconPapers)
JEL-codes: C32 G12 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S105905601500057X
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:reveco:v:38:y:2015:i:c:p:291-307

DOI: 10.1016/j.iref.2015.03.005

Access Statistics for this article

International Review of Economics & Finance is currently edited by H. Beladi and C. Chen

More articles in International Review of Economics & Finance from Elsevier
Bibliographic data for series maintained by Haili He ().

 
Page updated 2020-07-15
Handle: RePEc:eee:reveco:v:38:y:2015:i:c:p:291-307