Revisiting Dividend Growth Predictability via Dividend Yield

30 Pages Posted: 10 Oct 2013 Last revised: 25 Feb 2014

See all articles by Panagiotis Asimakopoulos

Panagiotis Asimakopoulos

Loughborough University - School of Business and Economics; University of Piraeus

Stylianos Asimakopoulos

University of Bath

Nikolaos Kourogenis

University of Piraeus, Department of Banking and Financial Management

Emmanuel D. Tsiritakis

University of Piraeus

Date Written: September 30, 2013

Abstract

One of the main theoretical implications of the present value approach on firm valuation is the hypothesis that dividend yield has a predictive power on future dividend growth. The relevant literature, however, was not able to provide evidence that clearly supports this hypothesis. In this paper we cope with the two main reasons that raise the econometric complexity on testing the dividend growth predictability hypothesis, namely, the seasonality effects that appear when higher frequency data are used, and the effect of price volatility on the computation of dividend yield. Specifically, an application of a the Mixed Data Sampling (MiDaS) technique allows us to use monthly dividend data in order to test the hypothesis that dividend yield explains the future annual dividend growth. In order to cancel out the effects of price variation on dividend yield we use a smoothing technique, and we identify the component of the smoothed dividend yield that offers predictive power. Empirical evidence from US, UK, Canada, Germany, France and Japan, strongly supports the dividend growth predictability hypothesis.

Keywords: Dividend growth, dividend yield, predictability, dividend smoothing, mixed frequency data analysis

JEL Classification: C53, G14, G15, E44, E47

Suggested Citation

Asimakopoulos, Panagiotis and Asimakopoulos, Stylianos and Kourogenis, Nikolaos and Tsiritakis, Emmanuel D., Revisiting Dividend Growth Predictability via Dividend Yield (September 30, 2013). Available at SSRN: https://ssrn.com/abstract=2335627 or http://dx.doi.org/10.2139/ssrn.2335627

Panagiotis Asimakopoulos (Contact Author)

Loughborough University - School of Business and Economics ( email )

Epinal Way
Leics LE11 3TU
Leicestershire
United Kingdom

University of Piraeus ( email )

80 Karaoli & Dimitriou Str.
18534 Piraeus, 185 34 -GR
Greece

Stylianos Asimakopoulos

University of Bath ( email )

Claverton Down
Bath, BA2 7AY
United Kingdom

Nikolaos Kourogenis

University of Piraeus, Department of Banking and Financial Management ( email )

80 Karaoli & Dimitriou Str.
18534 Piraeus, 185 34 -GR
Greece

Emmanuel D. Tsiritakis

University of Piraeus ( email )

80 Karaoli & Dimitriou Str.
18534 Piraeus, 185 34 -GR
Greece
00302104142187 (Phone)

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