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, Vol.46 (No.5). 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:	Journal Article
Subjects:	H Social Sciences > HG Finance
Divisions:	Faculty of Social Sciences > Warwick Business School > Finance Group Faculty of Social Sciences > Warwick Business School
Journal or Publication Title:	Journal of Financial and Quantitative Analysis
Publisher:	Cambridge University Press
ISSN:	0022-1090
Date:	2011
Volume:	Vol.46
Number:	No.5
Number of Pages:	28
Page Range:	pp. 1493-1520
Identification Number:	10.1017/S0022109011000329
Status:	Peer Reviewed
Publication Status:	Published
Access rights to Published version:	Restricted or Subscription Access
URI:	http://wrap.warwick.ac.uk/id/eprint/44789

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