Demographic Trends, the Dividend-Price Ratio and the Predictability of Long-Run Stock Market Returns

Carlo Favero (), Arie Gozluklu and Andrea Tamoni

No 7734, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper documents the existence of a slowly evolving trend in the dividend-price ratio, dpt, determined by a demographic variable, MY: the middle-aged to young ratio. Deviations of dpt from this long-run component explain transitory but persistent fluctuations in stock market returns. The relation between MY and dpt is a prediction of an overlapping generation model. The joint significance of MY and dpt in long-horizon forecasting regressions for market returns explain the mixed evidence on the ability of dpt to predict stock returns and provide a model-based interpretation of statistical corrections for breaks in the mean of this financial ratio.

Keywords: Demographics; Dynamic dividend growth model; Long run returns predictability (search for similar items in EconPapers)
JEL-codes: C10 C11 C19 C22 C53 G14 (search for similar items in EconPapers)
Date: 2010-03
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Demographic Trends, the Dividend-Price Ratio, and the Predictability of Long-Run Stock Market Returns (2011)
Working Paper: Demographic Trends, the Dividend-Price Ratio and the Predictability of Long-Run Stock Market Returns (2010)
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