Dividends, Total Cashflows to Shareholders and Predictive Return Regressions

46 Pages Posted: 25 Jul 2003

See all articles by Donald Robertson

Donald Robertson

Cambridge University - Department of Economics

Stephen H. Wright

Birkbeck College, University of London

Date Written: March 20, 2003

Abstract

This paper provides evidence on the predictive power of dividend yields for aggregate stock returns using a new annual dataset over the course of the twentieth century. Following Miller & Modigliani (1961), we construct a measure of the dividend yield that includes all cashflows to shareholders. In a cointegrating VAR framework we show that this has strong and stable predictive power for returns. The weak redictive power of standard measures of the dividend yield appears to arise from the strong rejection by the data of the implied restrictions on the impact of non-dividend cashflows.

Suggested Citation

Robertson, Donald and Wright, Stephen H., Dividends, Total Cashflows to Shareholders and Predictive Return Regressions (March 20, 2003). Available at SSRN: https://ssrn.com/abstract=423981 or http://dx.doi.org/10.2139/ssrn.423981

Donald Robertson (Contact Author)

Cambridge University - Department of Economics ( email )

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Stephen H. Wright

Birkbeck College, University of London ( email )

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London, WC1 E7HX
United Kingdom

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