Four Centuries of Return Predictability

Benjamin Golez and Peter Koudijs
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Benjamin Golez: University of Notre Dame
Peter Koudijs: Stanford University

Research Papers from Stanford University, Graduate School of Business

Abstract: We analyze four centuries of stock prices and dividends in the Dutch, English, and U.S. market. With the exception of the post-1945 period, the dividend-to-price ratio is stationary and predicts returns throughout all four centuries. "Excess volatility" is thus a pervasive feature of financial markets. The dividend-to-price ratio also predicts dividend growth rates in all but the most recent period. Cash-flows were therefore much more important for price movements before 1945, and the dominance of discount rate news is a relatively recent phenomenon. This is consistent with the increased duration of the stock market in the recent period.

JEL-codes: G12 G17 N20 (search for similar items in EconPapers)
Date: 2015-01
New Economics Papers: this item is included in nep-cfn and nep-his
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