Tom Engsted

The dividend-price ratio does predict dividend growth: International evidence

Publikation: Working paperForskning

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The dividend-price ratio does predict dividend growth: International evidence. / Engsted, Tom; Pedersen, Thomas Quistgaard.

Aarhus : Institut for Økonomi, Aarhus Universitet, 2009.

Publikation: Working paperForskning

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@techreport{f20bbc70867311deb4c2000ea68e967b,
title = "The dividend-price ratio does predict dividend growth: International evidence",
abstract = "Unpredictable dividend growth by the dividend-price ratio is considered a 'stylizedfact' in post war US data. Using long-term data, covering more than 80 years fromthe US and three European countries, we revisit this stylized fact, and we also reportresults on return predictability. We find large cross-country differences regardingreturn and dividend growth predictability. For the US, we confirm Chen's (2008)finding of a 'tale of two periods' but with the important difference that short- andlong-horizon real returns are significantly predictable in both sub-periods (1871-1949 and 1950-2008), while long-horizon real dividend growth is unpredictable inthe early period and significantly predictable in the 'wrong' direction in the postwar period. These results are directly opposite to those reported by Chen usingnominal returns and dividend growth. For the UK, the results are more or lesssimilar to those for the US. For Sweden and Denmark we find no evidence of returnpredictability, but strong evidence of predictable dividend growth in the 'right'direction on both short and long horizons and over both the full sample periodsand the post war period. We also document that implied long-horizon coefficientsfrom VAR's often differ substantially from direct estimates in multi-year regres-sions. Throughout, we report both standard asymptotic tests and simulated small-sample tests and, following Cochrane (2008), we investigate the joint distributionof dividend-price ratio coefficients in return and dividend growth regressions.",
keywords = "Dividend-price ratio, equity return and dividend growth, short- and long horizon predictability, VAR model, asymptotic and small-sample tests",
author = "Tom Engsted and Pedersen, {Thomas Quistgaard}",
year = "2009",
language = "English",
publisher = "Institut for {\O}konomi, Aarhus Universitet",
type = "WorkingPaper",
institution = "Institut for {\O}konomi, Aarhus Universitet",

}

RIS

TY - UNPB

T1 - The dividend-price ratio does predict dividend growth: International evidence

AU - Engsted, Tom

AU - Pedersen, Thomas Quistgaard

PY - 2009

Y1 - 2009

N2 - Unpredictable dividend growth by the dividend-price ratio is considered a 'stylizedfact' in post war US data. Using long-term data, covering more than 80 years fromthe US and three European countries, we revisit this stylized fact, and we also reportresults on return predictability. We find large cross-country differences regardingreturn and dividend growth predictability. For the US, we confirm Chen's (2008)finding of a 'tale of two periods' but with the important difference that short- andlong-horizon real returns are significantly predictable in both sub-periods (1871-1949 and 1950-2008), while long-horizon real dividend growth is unpredictable inthe early period and significantly predictable in the 'wrong' direction in the postwar period. These results are directly opposite to those reported by Chen usingnominal returns and dividend growth. For the UK, the results are more or lesssimilar to those for the US. For Sweden and Denmark we find no evidence of returnpredictability, but strong evidence of predictable dividend growth in the 'right'direction on both short and long horizons and over both the full sample periodsand the post war period. We also document that implied long-horizon coefficientsfrom VAR's often differ substantially from direct estimates in multi-year regres-sions. Throughout, we report both standard asymptotic tests and simulated small-sample tests and, following Cochrane (2008), we investigate the joint distributionof dividend-price ratio coefficients in return and dividend growth regressions.

AB - Unpredictable dividend growth by the dividend-price ratio is considered a 'stylizedfact' in post war US data. Using long-term data, covering more than 80 years fromthe US and three European countries, we revisit this stylized fact, and we also reportresults on return predictability. We find large cross-country differences regardingreturn and dividend growth predictability. For the US, we confirm Chen's (2008)finding of a 'tale of two periods' but with the important difference that short- andlong-horizon real returns are significantly predictable in both sub-periods (1871-1949 and 1950-2008), while long-horizon real dividend growth is unpredictable inthe early period and significantly predictable in the 'wrong' direction in the postwar period. These results are directly opposite to those reported by Chen usingnominal returns and dividend growth. For the UK, the results are more or lesssimilar to those for the US. For Sweden and Denmark we find no evidence of returnpredictability, but strong evidence of predictable dividend growth in the 'right'direction on both short and long horizons and over both the full sample periodsand the post war period. We also document that implied long-horizon coefficientsfrom VAR's often differ substantially from direct estimates in multi-year regres-sions. Throughout, we report both standard asymptotic tests and simulated small-sample tests and, following Cochrane (2008), we investigate the joint distributionof dividend-price ratio coefficients in return and dividend growth regressions.

KW - Dividend-price ratio, equity return and dividend growth, short- and long horizon predictability, VAR model, asymptotic and small-sample tests

M3 - Working paper

BT - The dividend-price ratio does predict dividend growth: International evidence

PB - Institut for Økonomi, Aarhus Universitet

CY - Aarhus

ER -