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Miller and Modigliani, predictive return regressions and cointegration

Alessandri, P. and Robertson, D. and Wright, Stephen (2008) Miller and Modigliani, predictive return regressions and cointegration. Oxford Bulletin of Economics & Statistics 70 (2), pp. 181-207. ISSN 0305-9049.

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Official URL: http://dx.doi.org/10.1111/j.1468-0084.2007.00499.x

Abstract

This paper investigates the use of alternative measures of dividend yields to predict US aggregate stock returns. Following Miller and Modigliani [Journal of Business (1961), Vol. 34, pp. 411–433] we construct a cashflow yield that includes both dividend and non-dividend cashflows to shareholders. Using a data set covering the course of the 20th century, we show in a cointegrating vector autoregression framework that this measure has strong and stable predictive power for returns. The weak predictive power of standard measures of the dividend yield is explained by the strong rejection of the implied cointegrating and causality restrictions on the impact of non-dividend cashflows.

Item Type: Article
School or Research Centre: Birkbeck Schools and Research Centres > School of Business, Economics & Informatics > Economics, Mathematics and Statistics
Depositing User: Administrator
Date Deposited: 26 Jan 2011 16:09
Last Modified: 17 Apr 2013 12:18
URI: http://eprints.bbk.ac.uk/id/eprint/1996

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