Testing the predictive power of dividend yields: non-parametric evidence from the G5

Francis Breedon, Marco Bianchi and Darren Sharma

Bank of England working papers from Bank of England

Abstract: This paper extends US evidence on the ability of current dividend yields to predict future equity returns in the G5 countries. By using non-parametric methods, evidence of a similar non- linear structure is found in all the countries analysed. This casts doubt on the linear framework adopted in earlier studies. The paper also finds that there is a strong relationship between extremes of dividends and future returns (in that very low/high dividends do predict low/high returns whilst intermediate levels of dividends do not). This non-linear structure strengthens the statistical evidence of a relationship between dividend yields and future returns and may help explain why previous studies have found mixed evidence.

Date: 1997-04
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:60

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