Dividend yields, dividend growth, and return predictability in the cross section of stocks

Paulo Maio, Pedro Santa-Clara

Research output: Contribution to journalArticlepeer-review

21 Citations (Scopus)

Abstract

There is a generalized conviction that variation in dividend yields is exclusively related to expected returns and not to expected dividend growth, for example, Cochrane's (2011) presidential address. We show that this pattern, although valid for the aggregate stock market, is not true for portfolios of small and value stocks, where dividend yields are related mainly to future dividend changes. Thus, the variance decomposition associated with the aggregate dividend yield has important heterogeneity in the cross section of equities. Our results are robust to different forecasting horizons, econometric methodology (long-horizon regressions or first-order vector autoregression), and alternative decomposition based on excess returns.

Original languageEnglish
Pages (from-to)33-60
Number of pages28
JournalJournal of Financial and Quantitative Analysis
Volume50
Issue number1-2
DOIs
Publication statusPublished - 14 Jul 2015

Keywords

  • BOOK-TO-MARKET
  • CONDITIONING VARIABLES
  • PREDICTIVE REGRESSIONS
  • MODELS
  • RATIOS
  • RISK
  • DURATION
  • PREMIUM
  • TESTS

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