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Predictability of stock returns and dividend growth using dividend yields: An international approach

Author

Listed:
  • Ana Sofia Monteiro

    (sofiamelomonteiro1@gmail.com)

  • Hélder Sebastião

    (Centre for Business and Economics Research (CeBER))

  • Nuno Silva

    (Centre for Business and Economics Research (CeBER))

Abstract

This paper examines stock returns and dividend growth predictability using dividend yields in seven large developed markets: US, UK, Japan, France, Germany, Italy and Spain. Altogether, these countries account for around 85% of the MSCI World Index. We use annual data, and for the US, UK, Japan, and France the time series are long enough to conduct a separate analysis of the pre- and post-IIWW periods. We also study the relationship between the predictability in dividend growth and the degree of dividend smoothness. For the post-IIWW period, returns are predictable in the US and the UK but dividends are unpredictable, while the opposite pattern is observed in Spain and Italy. In Germany, there is some evidence of short-term predictability for both returns and dividends, while in France only returns are predictable. In Japan, neither variable can be forecasted. Generally, there is no clear connection between dividend smoothness and predictability.

Suggested Citation

  • Ana Sofia Monteiro & Hélder Sebastião & Nuno Silva, 2018. "Predictability of stock returns and dividend growth using dividend yields: An international approach," CeBER Working Papers 2018-10, Centre for Business and Economics Research (CeBER), University of Coimbra.
    • Handle: RePEc:gmf:papers:2018-10
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    More about this item

    Keywords

    Return; Dividend Yield; Dividend Growth; Dividend Smoothing; Predictability.;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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