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Demographic trends, the dividend-price ratio, and the predictability of long-run stock market returns

Favero, Carlo A., Gozluklu, Arie E. and Tamoni, Andrea (2011) Demographic trends, the dividend-price ratio, and the predictability of long-run stock market returns. Journal of Financial and Quantitative Analysis, 46 (05). pp. 1493-1520. ISSN 0022-1090

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Abstract

This paper documents the existence of a slowly evolving trend in the log dividend-price ratio, DPt , determined by a demographic variable, MYt: the middle-aged to young ratio. Deviations of DPt from this long-run component explain transitory but persistent fluctuations in stock market returns. The relation between MYt and DPt is a prediction of an overlapping generation model. The joint significance of MY and DPt in long-horizon forecasting regressions for market returns explains the mixed evidence on the ability of DPt to predict stock returns and provide a model-based interpretation of statistical corrections for breaks in the mean of this financial ratio.

Item Type: Article
Official URL: http://www.jfqa.org/
Additional Information: © 2011 Michael G. Foster School of Business, University of Washington, SEATTLE, WA 98195
Library of Congress subject classification: H Social Sciences > HG Finance
Journal of Economic Literature Classification System: G - Financial Economics > G1 - General Financial Markets > G10 - General
Sets: Departments > Finance
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 08 Aug 2012 12:14
URL: http://eprints.lse.ac.uk/45245/

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