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

Posted: 28 May 2008

See all articles by Long Chen

Long Chen

Cheung Kong Graduate School of Business; Luohan Academy

Multiple version iconThere are 2 versions of this paper

Date Written: May 2008

Abstract

A disconcerting, albeit generally accepted, finding is that aggregate stock returns are 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 returns are largely unpredictable in the first seven decades, but become 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 returns and dividend growth is also documented.

Keywords: Dividend yield, equity return, dividend growth, predictability

JEL Classification: G12, E44

Suggested Citation

Chen, Long and Chen, Long, On the Reversal of Return and Dividend Growth Predictability: A Tale of Two Periods (May 2008). Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=1137998

Long Chen (Contact Author)

Luohan Academy ( email )

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Cheung Kong Graduate School of Business ( email )

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