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On the Reversal of Return and Dividend Growth Predictability: A Tale of Two Periods

53 Pages Posted: 25 Mar 2008 Last revised: 27 May 2008

Long Chen

Cheung Kong Graduate School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: May 2008

Abstract

A disconcerting, albeit generally accepted, finding is that aggregate stock return is predictable by dividend yield but dividend growth is unpredictable. I show that part of this lack of dividend growth predictability stems from how dividend growth is constructed. I then document a dramatic reversal of predictability in the 134 years during 1872-2005: stock return is largely unpredictable in the first seven decades, but becomes predictable in the postwar period; dividend growth is strongly predictable in the prewar years but this predictability disappears in the postwar years. New evidence on the predictability of long-run return and dividend growth is also documented.

Keywords: Dividend price ratio, equity return, dividend growth, predictability

JEL Classification: G12, E44

Suggested Citation

Chen, Long, On the Reversal of Return and Dividend Growth Predictability: A Tale of Two Periods (May 2008). Available at SSRN: https://ssrn.com/abstract=971278 or http://dx.doi.org/10.2139/ssrn.971278

Long Chen (Contact Author)

Cheung Kong Graduate School of Business ( email )

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One East Chang An Avenue
Beijing, 100738
China

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