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The Predictive Ability of Dividend and Earnings Yields for Long‐Term Stock Returns
Author(s) -
Wu Chunchi,
Wang XuMing
Publication year - 2000
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/j.1540-6288.2000.tb01416.x
Subject(s) - predictive power , dividend , earnings , stock (firearms) , economics , econometrics , autocorrelation , earnings growth , dividend yield , term (time) , earnings yield , financial economics , earnings per share , dividend policy , price–earnings ratio , mathematics , finance , statistics , mechanical engineering , philosophy , physics , epistemology , quantum mechanics , engineering
We use empirical models to examine the predictive ability of dividend and earnings yields for long‐term stock returns. Results show that dividend and earnings yields share a similar predictive power for future stock returns and growth. We find that the predictive power of dividend yields increases with the return horizon, but that yields forecast future returns and growth over a much longer horizon. Finally, dividend and earnings yields exhibit high autocorrelation and strong contemporaneous relations.