Dividend-Price Ratios and Stock Returns: Another Look at the History

Abstract

One of the prime pieces of evidence supporting the hypothesis that expected stock returns vary over time is that regressions of future returns on dividend-price ratios are highly significant, but future dividend growth is unrelated to the ratio. This paper presents another interpretation of these results that is consistent with constant expected returns based on the economic history of the United States. In so doing, the paper not only provides an alternative interpretation of the regression results, but also highlights the importance of analyzing the historical events responsible for generating financial economic data.

Keywords: dividend price ratio, expected returns

JEL Classification: G12