Stock Return and Dividend Growth Predictability Across the Business Cycle
57 Pages Posted: 4 Oct 2013 Last revised: 26 Jan 2015
Date Written: January 25, 2015
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: Suggested Citation