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
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