Fractional Integration of the Price-Dividend Ratio in a Present-Value Model of Stock Prices


Autoria(s): Goliński, Adam; Madeira, João; Rambaccussing, Dooruj
Data(s)

06/08/2015

06/08/2015

12/09/2014

Resumo

We re-examine the dynamics of returns and dividend growth within the present-value framework of stock prices. We find that the finite sample order of integration of returns is approximately equal to the order of integration of the first-differenced price-dividend ratio. As such, the traditional return forecasting regressions based on the price-dividend ratio are invalid. Moreover, the nonstationary long memory behaviour of the price-dividend ratio induces antipersistence in returns. This suggests that expected returns should be modelled as an AFIRMA process and we show this improves the forecast ability of the present-value model in-sample and out-of-sample.

Identificador

http://hdl.handle.net/10943/687

Idioma(s)

en

Publicador

University of Dundee

Relação

SIRE DISCUSSION PAPER;SIRE-DP-2015-79

Palavras-Chave #price-dividend ratio #persistence #fractional integration #return predictability #present-value model
Tipo

Other