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
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.
|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|
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