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Time-series properties of the dividend--price ratio with social dynamics

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  • Jochen Lawrenz

Abstract

We model an exchange economy where a finite number of standard identical agents interact locally and analyse the time-series properties of the simulated dividend--price ratio dp t . Our results document that a sufficient degree of social dynamics induces high persistence in dp t which leads to the failure to reject the null of a unit root, as well as the failure to reject the null that dividends and prices are not cointegrated. At the same time, we find that returns are not significantly autocorrelated, thus, being consistent with weak-form market efficiency. Finally, we document that although dp t is highly persistent, econometric tests may still find predictability of future returns by current dividend--price ratios.

Suggested Citation

  • Jochen Lawrenz, 2013. "Time-series properties of the dividend--price ratio with social dynamics," Applied Economics, Taylor & Francis Journals, vol. 45(5), pages 569-579, February.
    • Handle: RePEc:taf:applec:45:y:2013:i:5:p:569-579
    DOI: 10.1080/00036846.2011.607134
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    References listed on IDEAS

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    1. Mehra, Rajnish & Prescott, Edward C., 2003. "The equity premium in retrospect," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 14, pages 889-938, Elsevier.
    2. MacKinnon, James G & Haug, Alfred A & Michelis, Leo, 1999. "Numerical Distribution Functions of Likelihood Ratio Tests for Cointegration," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(5), pages 563-577, Sept.-Oct.
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