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Changes in the Composition of Publicly Traded Firms: Implications for the Dividend-Price Ratio and Return Predictability

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  • Stephan Jank

    (Finance Department, Frankfurt School of Finance and Management, 60314 Frankfurt am Main, Germany; and Centre for Financial Research (CFR), 50923 Cologne, Germany)

Abstract

This paper documents how the changing composition of U.S. publicly traded firms has prompted a decline in the long-run mean of the aggregate dividend-price ratio, most notably since the 1970s. Adjusting the dividend-price ratio for such changes resolves several issues with respect to the predictability of stock market returns: the adjusted dividend-price ratio is less persistent, in-sample evidence for predictability is more pronounced, there is greater parameter stability in the predictive regression (particularly during the 1990s), and there is evidence of out-of-sample predictability.Data, as supplemental material, are available at http://dx.doi.org/10.1287/mnsc.2013.1883 . This paper was accepted by Itay Goldstein, finance .

Suggested Citation

  • Stephan Jank, 2015. "Changes in the Composition of Publicly Traded Firms: Implications for the Dividend-Price Ratio and Return Predictability," Management Science, INFORMS, vol. 61(6), pages 1362-1377, June.
    • Handle: RePEc:inm:ormnsc:v:61:y:2015:i:6:p:1362-1377
    DOI: 10.1287/mnsc.2013.1883
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    References listed on IDEAS

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    2. Jonathan A. Batten & Harald Kinateder & Niklas Wagner, 2022. "Beating the Average: Equity Premium Variations, Uncertainty, and Liquidity," Abacus, Accounting Foundation, University of Sydney, vol. 58(3), pages 567-588, September.
    3. Kroencke, Tim A., 2022. "Recessions and the stock market," Journal of Monetary Economics, Elsevier, vol. 131(C), pages 61-77.

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