Disappearing Dividends: Implications for the Dividend–Price Ratio and Return Predictability

Chang‐jin Kim and Cheolbeom Park

Journal of Money, Credit and Banking, 2013, vol. 45, issue 5, 933-952

Abstract: The conventional dividend–price ratio is highly persistent, and the literature reports mixed evidence on its role in predicting stock returns. We argue that the decreasing number of firms with a traditional dividend‐payout policy is responsible for these results, and develop a model in which the long‐run relationship between the dividends and stock price is time varying. An adjusted dividend–price ratio that accounts for the time‐varying long‐run relationship is considerably less persistent. Furthermore, the predictive regression model that employs the adjusted dividend–price ratio as a regressor outperforms the random‐walk model. These results are robust with respect to the firm size.

Date: 2013
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https://doi.org/10.1111/jmcb.12031

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Journal Article: Disappearing Dividends: Implications for the Dividend-Price Ratio and Return Predictability (2013)
Working Paper: Disappearing Dividends: Implications for the Dividend-Price Ratio and Return Predictability (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:45:y:2013:i:5:p:933-952

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