Stock Return and Dividend Growth Predictability Across the Business Cycle

57 Pages Posted: 4 Oct 2013 Last revised: 26 Jan 2015

See all articles by Stig Vinther Møller

Stig Vinther Møller

Aarhus University - CREATES

Magnus Sander

Aarhus University - CREATES

Date Written: January 25, 2015

Abstract

This paper develops an extension of Cochrane's (2008) joint hypothesis framework by allowing the coefficients to depend on the state of the economy. For recessions the results are clear-cut. Dividend yields vary entirely due to return predictability. However, in expansions, the "dog that did not bark" effect is present with respect to both return and dividend growth predictability. Dividend yields vary much less during stable periods of economic booms and returns and dividend growth seem only weakly predictable.

Keywords: asset pricing, dividend yield, stock return predictability, dividend growth predictability, present-value relation, bootstrap, business cycles

JEL Classification: G12, G17, E44

Suggested Citation

Møller, Stig Vinther and Sander, Magnus, Stock Return and Dividend Growth Predictability Across the Business Cycle (January 25, 2015). Available at SSRN: https://ssrn.com/abstract=2335428 or http://dx.doi.org/10.2139/ssrn.2335428

Stig Vinther Møller (Contact Author)

Aarhus University - CREATES ( email )

Nordre Ringgade 1
Aarhus, DK-8000
Denmark

Magnus Sander

Aarhus University - CREATES ( email )

Nordre Ringgade 1
DK-8000 Aarhus C, 8000
Denmark

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