Inflation illusion and the dividend yield: evidence from the UK

Daniella Acker and Nigel Duck

The European Journal of Finance, 2014, vol. 20, issue 12, 1230-1245

Abstract: We report evidence that the UK dividend yield and expected inflation are positively correlated from 1962 to 1997, but negatively correlated subsequently. Using a commonly used VAR (vector auto-regression)-based procedure we find strong evidence that the positive correlation is caused both by inflation illusion and the effect of inflation on required rates of return. We also find some evidence that it is caused by inflation rationally reducing expected real dividend growth. We find that Chen and Zhao's (2009. "Return Decomposition." Review of Financial Studies 22 (12): 5213-5249) criticism of the VAR-based procedure has little empirical relevance but that the procedure can be highly sensitive to the choice of data period.

Date: 2014
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/1351847X.2013.784207 (text/html)
Access to full text is restricted to subscribers.

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:taf:eurjfi:v:20:y:2014:i:12:p:1230-1245

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/REJF20

DOI: 10.1080/1351847X.2013.784207

Access Statistics for this article

The European Journal of Finance is currently edited by Chris Adcock

More articles in The European Journal of Finance from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().