TY - JOUR
T1 - Demographic trends, the dividend-price ratio, and the predictability of long-run stock market returns
AU - Favero, Carlo A.
AU - Gozluklu, Arie E.
AU - Tamoni, Andrea
N1 - Funding Information: ∗Favero, [email protected], Bocconi University, Department of Finance, Innocenzo Gasparini Institute for Economic Research (IGIER), Via Sarfatti, 25, Milan 20136, Italy and Centre for Economic Policy Research (CEPR); Gozluklu, [email protected], Bocconi University, Department of Finance, Milan 20136, Italy and University of Warwick; and Tamoni, [email protected], Bocconi University, Department of Finance, Milan 20136, Italy. We thank Sami Alpanda, Philippe Andrade, Gurdip Bakshi (associate editor and a referee), Sasson Bar-Yosef, Hendrik Bessembinder (the editor), Francesco Billari, Michael Halling, Joachim Inkmann, Ralph Koijen, Massimiliano Marcellino, Nicola Pavoni, Gianluca Violante, an anonymous referee, and seminar participants at the Financial Markets and Real Activity Conference in Paris, the 2009 European Finance Association (EFA) in Bergen, 2009 Italian Congress of Econometrics and Empirical Economics (ICEEE) in Ancona, Collegio Carlo Alberto, Tilburg University, London Business School, and University of York for helpful comments. We are grateful to Andrew Mason and Guillaume Vandenbroucke for providing us with some of the data used in this paper. Favero acknowledges financial support from Bocconi University and from the Ministry of Education, University and Research (MIUR). Any errors or omissions are the responsibility of the authors.
PY - 2011/10
Y1 - 2011/10
N2 - 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.
AB - 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.
UR - https://www.scopus.com/pages/publications/82655183631
UR - https://www.scopus.com/pages/publications/82655183631#tab=citedBy
U2 - 10.1017/S0022109011000329
DO - 10.1017/S0022109011000329
M3 - Article
SN - 0022-1090
VL - 46
SP - 1493
EP - 1520
JO - Journal of Financial and Quantitative Analysis
JF - Journal of Financial and Quantitative Analysis
IS - 5
ER -