Local trends in price-to-dividend ratios - assessment, predictive value and determinants

Herwartz, H., Rengel, M. and Xu, F. (2016) Local trends in price-to-dividend ratios - assessment, predictive value and determinants. Journal of Money, Credit and Banking, 48 (8). pp. 1655-1690. ISSN 1538-4616 doi: 10.1111/jmcb.12370

Abstract/Summary

Persistent variations of the log price-to-dividend ratio (PD) and their economic determinants have attracted a lively discussion in the literature. We suggest a gradually time-varying state process to govern the persistence of the PD. The adopted state-space approach offers favorable model diagnostics and finds particular support in out-of-sample stock return prediction. We show that this slowly evolving mean process is jointly shaped by the consumption risk, the demographic structure, and the proportion of firms with traditional dividend payout policy during the past 60 years. In particular, the volatility of consumption growth plays the dominant role.

Item Type	Article
URI	https://reading-clone.eprints-hosting.org/id/eprint/64088
Identification Number/DOI	10.1111/jmcb.12370
Refereed	Yes
Divisions	Arts, Humanities and Social Science > School of Politics, Economics and International Relations > Economics
Publisher	Wiley
Download/View statistics	View download statistics for this item