An Investigation on the Stock Return Predictability of Dividend Yield and Earning-Price Ratio

Purpose Although it has often been studied in finance research, the relationship between dividend yields and stock returns remains an unresolved issue, especially in the Korean stock market. When firms continue to pay non-decreasing dividends for three or five years, they may establish a dividend reputation, which could affect this relationship. The author found firms that pay more dividends, larger firms, older firms, more profitable firms, less leveraged firms, firms with less volatile returns, firms with foreign holdings of more than 5%, and firms with more concentrated ownership build dividend reputations. The author also found that the relationship between dividend yields and future stock returns depends on a firm’s dividend reputation. The evidence shows that when firms with higher yields have dividend reputations, they produce higher future returns, whereas there is no significant relationship between yields and returns for firms with no reputation. These results are inconsistent with the findings of studies that use developed market data. In addition, when larger firms with higher growth potential and firms with less concentrated ownership have dividend reputations, future returns are higher.

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Stock Price Prediction Based on Financial Statements Using SVM

Heo

Yang²

2016

IJHIT

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An Investigation on the Stock Return Predictability of Dividend Yield and Earning-Price Ratio

Cited by 4 publications

References 19 publications

Predicting the equity premium with financial ratios: A comprehensive look over a long period in Korea

Predicting the equity premium with financial ratios: A comprehensive look over a long period in Korea

Dividend reputation, dividend yield and stock returns in Korea

Stock Price Prediction Based on Financial Statements Using SVM

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