Tug-of-War: Time-Varying Predictability of Stock Returns and Dividend Growth

Abstract

Abstract We propose a regime-switching present-value model with latent variables to jointly investigate the predictability of stock returns and dividend growth. We find that both return predictability and dividend growth predictability are time-varying. Interestingly, the predictability of stock returns and dividend growth is a tug-of-war contest: when dividend growth is highly predictable in the high-volatility regime, stock returns are largely unpredictable; in contrast, when dividend growth is less predictable in the low-volatility regime, stock returns are significantly predictable. We also investigate macroeconomic determinants of regime switches and find that two regimes are intimately related to macroeconomic risk and economic activity.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 24 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.