Dividend Growth Predictability and Stock Price Movement

30 Pages Posted: 4 Aug 2016

See all articles by Min Zhu

Min Zhu

University of Queensland

Rui Chen

Central University of Finance and Economics (CUFE)

Ke Du

Institute of Financial Studies (IFS), Southwestern University of Finance and Economics (SWUFE)

Date Written: July 1, 2015

Abstract

This paper studies dividend growth predictability without restricting conditioning information set to dividend yield alone. We highlight that predictability crucially hinges on how dividend growth is constructed. Dividend growth without reinvestment is significantly predictable both in-sample and out-of-sample by a number of economic fundamentals. The results are robust across subsamples. When dividend growth predictability is properly taken account of, it leads to a different picture of variance decomposition of returns. Contrary to the prevailing views, the cash flow news is important in driving stock price movement in aggregate level after incorporating dividend growth predictability.

Keywords: dividend growth, predictability, return decomposition

JEL Classification: C16, C53, C61, G11

Suggested Citation

Zhu, Min and Chen, Rui and Du, Ke, Dividend Growth Predictability and Stock Price Movement (July 1, 2015). Available at SSRN: https://ssrn.com/abstract=2818200 or http://dx.doi.org/10.2139/ssrn.2818200

Min Zhu (Contact Author)

University of Queensland ( email )

St Lucia
Brisbane, Queensland 4072
Australia

HOME PAGE: http://https://www.business.uq.edu.au/staff/min-zhu

Rui Chen

Central University of Finance and Economics (CUFE) ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

Ke Du

Institute of Financial Studies (IFS), Southwestern University of Finance and Economics (SWUFE) ( email )

55 Guanghuacun St,
Chengdu, Sichuan 610074
China

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