Changes in the Composition of Publicly Traded Firms: Implications for the Dividend-Price Ratio and Return Predictability

45 Pages Posted: 17 Aug 2012 Last revised: 11 Jun 2014

Date Written: April 24, 2013

Abstract

This article documents how the changing composition of U.S. publicly traded firms has prompted a decline in the long-run mean of the aggregate dividend-price ratio, most notably since the 1970s. Adjusting the dividend–price ratio for such changes resolves several issues with respect to the predictability of stock market returns: The adjusted dividend-price ratio is less persistent, in-sample evidence for predictability is more pronounced, there is greater parameter stability in the predictive regression (particularly during the 1990s), and there is evidence of out-of-sample predictability.

Keywords: return predictability, dividend-price ratio, payout policy, sample selection, choice of organizational structure

JEL Classification: G10, G12, G14, G35

Suggested Citation

Jank, Stephan, Changes in the Composition of Publicly Traded Firms: Implications for the Dividend-Price Ratio and Return Predictability (April 24, 2013). Available at SSRN: https://ssrn.com/abstract=2131210 or http://dx.doi.org/10.2139/ssrn.2131210

Stephan Jank (Contact Author)

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

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