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Kuang-Liang Chang
''Stock return predictability and stationarity of dividend yield''
( 2012, Vol. 32 No.1 )
This paper first investigates the stationarity of dividend yield and then analyzes the predictive ability of the adjusted dividend yield which removes structural changes and high persistence characteristics. Empirical results have found that the dividend yield follows a mean-reverting process in each regime, and the convergence speed depends on the mean and variance. Moreover, the dividend yield is also global stationary. Finally, the adjusted dividend yield can predict future stock returns, and its predictive ability is time-invariant.
Keywords: mean reversion, regime switching, stationarity, stock return predictability
JEL: C2 - Single Equation Models; Single Variables: General
Manuscript Received : Sep 05 2011 Manuscript Accepted : Feb 24 2012

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