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Dividend growth and equity premium predictability

Min Zhu, Rui Chen, Ke Du and You-Gan Wang

International Review of Economics & Finance, 2018, vol. 56, issue C, 125-137

Abstract: This paper studies dividend growth predictability without restricting the conditioning information set to dividend yield alone. We highlight that predictability crucially hinges on how dividend growth is constructed. While there is little predictability in the market-reinvested dividend growth, the pure dividend growth is significantly predictable both in-sample and out-of-sample by a number of economic fundamentals. This strong pure dividend growth predictability leads to improved equity premium prediction under the present-value framework.

Keywords: Dividend growth; Equity premium; Predictability (search for similar items in EconPapers)
JEL-codes: C16 C53 C61 G11 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:reveco:v:56:y:2018:i:c:p:125-137