Our paper suggests a simple, recursive residuals (out-of-sample) graphical approach to evaluating the predictive power of popular equity premium and stock market timeseries forecasting regressions. When applied, we find that dividend ratios should have been known to have no predictive ability even prior to the 1990s, and that any seeming ability even then was driven by only two years, 1973 and ...

We ask whether stock returns in France, Germany, Japan, the UK and the US are predictable by three instruments: the dividend yield, the earnings yield and the short rate. The predictability regression is suggested by a present value model with earnings growth, payout ratios and the short rate as state variables. We find the short rate to be the only robust short-run predictor of excess returns,...

This letter is intended to demonstrate that price inflation and stock returns display differing relationships depending on the measure of inflation used. Using data from 1966 – 2009, it appears that no correlation exists between any measure of price inflation and stock returns or dividend yield in the period 1983 – 2009. We do find a negative correlation between monetary inflation and dividend ...

In their seminal paper, Bovenberg and De Mooij (1994) elucidate why an ecological tax reform will not yield a double dividend, i.e. fails to increase the efficiency of the tax system. The present paper slightly modifies the Bovenberg and De Mooij model by introducing money illusion. With this modification, an environmental tax reform that raises the price level may generate a double dividend, s...

This note reinterprets methods that seek to use the aggregate dividend price ratio to predict aggregate stock market returns; specifically, methods which use information about time-varying changes in the dividend-price ratio process to improve the prediction equation. It argues that the empirical evidence is still too weak to suggest practical usefulness of these estimators. ∗We thank John Coch...

Explaining dividend policy has been one of the most difficult challenges facing financial economists. Despite decades of study, we have yet to completely understand the factors that influence dividend policy and the manner in which these factors interact.The aim of this paper is to examine the relation between dividend policy and share price volatility in Tehran Stock Exchange (TSE). The analys...

In the asset pricing literature, time-variation in market expected excess return captured by financial ratios like dividend yield is typically viewed as a reflection of either changing risk, related to the business cycle, or irrational mispricing. Extending the work on asset allocation and dividend yield by Kandel and Stambaugh (1996) to accommodate variation in risk as well as expected return,...

In this paper, I test the dividend clientele hypothesis (DCH) by examining the impact of the Jobs and Growth Tax Relief Reconciliation Act of 2003 (the 2003 tax act) on household portfolio dividend yields. The DCH predicts that the 2003 tax act, which reduced the tax-disadvantage of dividends differentially across the income distribution, would cause high income households to shift their portfo...

This paper analyzes the behavior of stock prices around ex-dividend days after the implementation of the 1986 Tax Reform Act that dramatically reduced the difference between the tax treatment of realized long-term capital gains and dividend income in 1987 and completely eliminated the differential in 1988. We show that this tax change had no effect on the ex-dividend stock price behavior, which...