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http://ssrn.com/abstract=1794267
 
 

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Dividends, Momentum and Macroeconomic Variables as Determinants of the U.S. Equity Premium Across Economic Regimes


A. (Tassos) G. Malliaris


Quinlan School of Business

Ramaprasad Bhar


UNSW Australia Business School, School of Banking and Finance

March 25, 2011

Review of Behavioral Finance, Forthcoming

Abstract:     
The equity premium of the S&P 500 Index is explained in this paper by several variables that can be grouped into fundamental, behavioral and macroeconomic factors. We hypothesize that the statistical significance of these variables changes across economic regimes. The three regimes we consider are the low, medium and high volatility regimes in contrast to previous studies that do not differentiate across economic regimes. Using the three-state Markov switching regime econometric methodology we confirm that the statistical significance of the independent variables representing fundamentals, macroeconomic conditions and a behavioral variable changes across economic regimes. Our findings offer an improved understanding of what moves the equity premium across economic regimes than what we can learn from single-equation estimation. Our results also confirm the significance of momentum as a behavioral variable across all economic regimes.

Number of Pages in PDF File: 40

Keywords: Excess stock returns, equity premium, dividends, macroeconomic variables, momentum, Markov regimes

JEL Classification: C22, E44, G12

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Date posted: March 28, 2011 ; Last revised: April 2, 2011

Suggested Citation

Malliaris, A. (Tassos) G. and Bhar, Ramaprasad, Dividends, Momentum and Macroeconomic Variables as Determinants of the U.S. Equity Premium Across Economic Regimes (March 25, 2011). Review of Behavioral Finance, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1794267

Contact Information

A. (Tassos) G. Malliaris (Contact Author)
Quinlan School of Business ( email )
1 E. Pearson Ave
Chicago, IL 60611
United States
312-915-6063 (Phone)
Ramaprasad Bhar
UNSW Australia Business School, School of Banking and Finance ( email )
Sydney, NSW 2052
Australia
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