Abstract

http://ssrn.com/abstract=2158406
 
 

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Dividend Yields, Dividend Growth, and Return Predictability in the Cross-Section of Stocks


Paulo F. Maio


Hanken School of Economics

Pedro Santa-Clara


New University of Lisbon - Nova School of Business and Economics; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

April 28, 2013

Journal of Financial and Quantitative Analysis (JFQA), Forthcoming

Abstract:     
There is a generalized conviction that variation in dividend yields is exclusively related to expected returns and not to expected dividend growth - e.g. Cochrane's presidential address (Cochrane (2011)). We show that this pattern, although valid for the aggregate stock market, is not true for portfolios of small and value stocks, where dividend yields are related mainly to future dividend changes. Thus, the variance decomposition associated with aggregate dividend yield has important heterogeneity in the cross-section of equities. Our results are robust to different forecasting horizons, econometric methodology used (long-horizon regressions or first-order VAR), and an alternative decomposition based on excess returns.

Number of Pages in PDF File: 46

Keywords: asset pricing, predictability of stock returns, dividend-growth predictability, long-horizon regressions, dividend yield, VAR implied predictability, present-value model, size premium, value premium, cross-section of stocks

JEL Classification: C22, G1, G14, G17, G35

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Date posted: October 8, 2012 ; Last revised: April 28, 2013

Suggested Citation

Maio, Paulo F. and Santa-Clara, Pedro, Dividend Yields, Dividend Growth, and Return Predictability in the Cross-Section of Stocks (April 28, 2013). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming. Available at SSRN: http://ssrn.com/abstract=2158406 or http://dx.doi.org/10.2139/ssrn.2158406

Contact Information

Paulo F. Maio (Contact Author)
Hanken School of Economics ( email )
Helsinki
Finland
Pedro Santa-Clara
New University of Lisbon - Nova School of Business and Economics ( email )
Lisbon
Portugal
HOME PAGE: http://docentes.fe.unl.pt/~psc/
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Centre for Economic Policy Research (CEPR) ( email )
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
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