Nonlinear Behavior of the US Stock Price-Dividend: Evidence from Threshold Unit Root Tests

Shu-Ching Cheng () and Tsung-Pao Wu ()
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Shu-Ching Cheng: Department of Economics, Feng Chia University, Taichung, Taiwan.
Tsung-Pao Wu: Department of Finance, Feng Chia University, Taichung, Taiwan.

Journal for Economic Forecasting, 2013, issue 4, 82-93

Abstract: This study investigates the behavior of US stock price–dividend relationships over the period 1871:01 to 2012:03 using a two-regime Threshold Autoregressive (TAR) model with an autoregressive unit root developed by Caner and Hansen (2001), which allows for simultaneously testing nonlinearity and non-stationary. Our findings indicate that the US stock price-dividend is a nonlinear series that is characterized by a unit root process in a particular month; the stock price-dividend ratio shows a decrease by more than 7.17% between the previous year and the previous fourth month.

Keywords: threshold autoregressive (TAR); US stock price-dividend; regime change (search for similar items in EconPapers)
JEL-codes: C32 C53 G14 (search for similar items in EconPapers)
Date: 2013
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