Changes in the Composition of Publicly Traded Firms: Implications for the Dividend-Price Ratio and Return Predictability
45 Pages Posted: 17 Aug 2012 Last revised: 26 Apr 2013
Date Written: April 24, 2013
Abstract
This article documents how the changing composition of U.S. publicly traded firms has prompted a decline in the long-run mean of the aggregate dividend-price ratio, most notably since the 1970s. Adjusting the dividend–price ratio for such changes resolves several issues with respect to the predictability of stock market returns: The adjusted dividend-price ratio is less persistent, in-sample evidence for predictability is more pronounced, there is greater parameter stability in the predictive regression (particularly during the 1990s), and there is evidence of out-of-sample predictability.
Keywords: return predictability, dividend-price ratio, payout policy, sample selection, choice of organizational structure
JEL Classification: G10, G12, G14, G35
Suggested Citation: Suggested Citation