Long-Horizon Returns Predictability and Structural Break in Stock Exchange of Thailand

35 Pages Posted: 16 Feb 2014

See all articles by Suthawan Prukumpai

Suthawan Prukumpai

Kasetsart University - Department of Accounting, Faculty of Business Administration

Date Written: November 1, 2011

Abstract

This paper examines the effect of structural break in long-run mean of dividend-price ratio and its impact on long-horizon returns predictive regression in the Stock Exchange of Thailand from April 1975 to December 2010. The empirical results show that there exists a structural break in dividend-price ratio over the sample period confirmed by both cointegration tests that allow a presence of structural break (Gregory and Hansen (1996)) and Bai and Perron (1998)’s procedure. Once we adjust the dividend-price ratio series as suggested by Lettua and Nieuwerburgh (2008), the overall estimated coefficients from regression using adjusted dividend-price ratio are bigger as well as R-squared. Interestingly, the adjusted dividend-price ratio could be properly used to predict Thai stock returns within 3-year horizons, while the adjusted dividend-price ratio seems to better predict dividend growth in longer horizons, 4- and 5-year horizons in particular.

Keywords: Long-horizon predictability, structural break, Stock Exchange of Thailand

JEL Classification: G12, E44

Suggested Citation

Prukumpai, Suthawan, Long-Horizon Returns Predictability and Structural Break in Stock Exchange of Thailand (November 1, 2011). Asian Finance Association (AsianFA) 2014 Conference Paper. Available at SSRN: https://ssrn.com/abstract=2395646 or http://dx.doi.org/10.2139/ssrn.2395646

Suthawan Prukumpai (Contact Author)

Kasetsart University - Department of Accounting, Faculty of Business Administration ( email )

Thailand

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