EconPapers    
Economics at your fingertips  
 

Fractional Integration of the Price-Dividend Ratio in a Present-Value Model of Stock Prices

Adam Golinski (), Joao Madeira () and Dooruj Rambaccussing ()

No 284, Dundee Discussion Papers in Economics from Economic Studies, University of Dundee

Abstract: We re-examine the dynamics of returns and dividend growth within the present-value framework of stock prices. We nd that the nite sample order of integration of returns is approximately equal to the order of integration of the rst-di¤erenced price-dividend ratio. As such, the traditional return forecasting regressions based on the price-dividend ratio are invalid. Moreover, the nonstationary long memory behaviour of the price-dividend ratio induces antipersistence in returns. This suggests that expected returns should be modelled as an ARFIMA process and we show this improves the forecast ability of the present-value model in-sample and out-of-sample.

Keywords: price-dividend ratio; persistence; fractional integration; return predictability; present-value model (search for similar items in EconPapers)
JEL-codes: C32 C58 G12 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2015-02
New Economics Papers: this item is included in nep-for
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6) Track citations by RSS feed

Downloads: (external link)
http://www.dundee.ac.uk/media/dundeewebsite/econom ... cussion/DDPE_284.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.dundee.ac.uk/media/dundeewebsite/economicstudies/documents/discussion/DDPE_284.pdf [301 Moved Permanently]--> https://www.dundee.ac.uk/media/dundeewebsite/economicstudies/documents/discussion/DDPE_284.pdf [301 Moved Permanently]--> http://www.dundee.ac.uk/media/dundeewebsite/schoolofbusiness/research/discussionpapers/DDPE_284.pdf [301 Moved Permanently]--> https://www.dundee.ac.uk/media/dundeewebsite/schoolofbusiness/research/discussionpapers/DDPE_284.pdf)

Related works:
Working Paper: Fractional Integration of the Price-Dividend Ratio in a Present-Value Model of Stock Prices (2014) Downloads
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:dun:dpaper:284

Access Statistics for this paper

More papers in Dundee Discussion Papers in Economics from Economic Studies, University of Dundee Contact information at EDIRC.
Bibliographic data for series maintained by Andrzej Kwiatkowski ().

 
Page updated 2021-06-23
Handle: RePEc:dun:dpaper:284