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Article
Publication date: 13 September 2021

Mahtab Athari, Atsuyuki Naka and Abdullah Noman

This paper aims to achieve two main objectives. The first is to introduce a suitable adjustment to the conventional dividend-price ratio, which would address econometric concerns…

Abstract

Purpose

This paper aims to achieve two main objectives. The first is to introduce a suitable adjustment to the conventional dividend-price ratio, which would address econometric concerns and improve the predictability of the equity premium. The second is to compare the predictive performance of the newly introduced adjusted dividend-price ratio with the conventional dividend-price ratio.

Design/methodology/approach

The authors hypothesize that the adjusted dividend-price ratio will have better predictive power and forecasting quality for equity premium compared to the conventional dividend-price ratio. To test the hypothesis, the authors predict equity premium with both variables on a sample of 11 developed and emerging market indexes over a period spanning June 1995 to March 2017. To accommodate time variation in parameter values or structural breaks in the data, the authors conducted a fixed window rolling regressions using both variables. A variety of forecast techniques including magnitude and sign accuracy measures are applied to compare the performance of forecasts.

Findings

The adjusted dividend-price ratio is shown to be stationary and has both lower persistence and variability compared with the conventional dividend-price ratio. The authors find that the adjusted dividend-price ratio provides superior out-of-sample (OOS) performance compared to the conventional dividend-price ratio, for both size and sign accuracy, in forecasting equity premium for the majority of the countries in the sample.

Research limitations/implications

This paper introduces an easy-to-follow modification in the conventional dividend-price ratio that can be replicated by researchers and practitioners alike. However, the study has a limitation in that it does not capture the impact of dividend-paying firms within each index on the predictive ability of the adjusted dividend-price ratio.

Practical implications

The knowledge of equity premium predictability is important in implementing market-timing strategies and could be beneficial for portfolio and risk management. The newly introduced variable is easy to construct using widely available data without the need for complex econometric estimation. Investors can use this variable to predict equity premiums in international markets, both developed and emerging. The findings of this paper will be relevant to financial analysts, portfolio managers, investors and researchers in international finance. For example, by using the adjusted dividend-price ratio, investors would see up to 0.5% improvement in their OOS monthly forecasts of the equity premium.

Originality/value

To the best of the authors’ knowledge, this is the first paper that proposes adjustment in the conventional dividend-price ratio based on the past observations of the most recent quarter. In this way, the paper offers fresh insight that dividend-price ratio is still useful to predict equity premium albeit, after some adjustments and modifications. The findings of the paper would result in renewed interest in using the dividend-price ratio as a predictor of the equity premium.

Details

Review of Accounting and Finance, vol. 20 no. 3/4
Type: Research Article
ISSN: 1475-7702

Keywords

Article
Publication date: 9 February 2015

Angela J. Black, David G. McMillan and Fiona J. McMillan

This paper aims to empirically test for multiple cointegrating vectors in a holistic manner. Theoretical developments imply bivariate cointegration among stock prices, dividends

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Abstract

Purpose

This paper aims to empirically test for multiple cointegrating vectors in a holistic manner. Theoretical developments imply bivariate cointegration among stock prices, dividends, output and consumption where independent models identify key theoretical cointegration vectors.

Design/methodology/approach

This paper considers both Johansen and Horvath–Watson testing approaches for cointegration. This paper also examines the forecasting power of these cointegrating relationships against alternate forecast variables.

Findings

The results suggest evidence of a long-run cointegrating relationship between stock prices, dividends, output and consumption, although not necessarily linked by a single common stochastic trend; each series responds to disequilibrium with greater evidence of a reaction from dividends and consumption – of note, output responds to changes in stock market equilibrium; and there is forecast power from the joint stock market–macro cointegrating vector for stocks returns and consumption growth over the historical average. Of particular note, other forecast models that include consumption perform well and suggest a key role for this variable in stock return and consumption growth forecasts.

Originality/value

This is the first paper to combine the cointegrating relationships between stocks, dividends, output and consumption. Thus, the empirical validity of stated theoretical hypotheses can be analysed. The forecast results also demonstrate the usefulness of this. They also show that forecast models that include consumption perform well and suggest a key role for this variable in stock return and consumption growth forecasts.

Details

Review of Accounting and Finance, vol. 14 no. 1
Type: Research Article
ISSN: 1475-7702

Keywords

Article
Publication date: 12 November 2019

Bill Dimovski, Rebecca Ratcliffe, Christopher Ratcliffe, Monica Keneley and Scott Salzman

The purpose of this paper is to investigate the accuracy of Australian Real Estate Investment Trust (A-REIT) initial public offering (IPO) dividend forecasts between 1994 and 2016.

Abstract

Purpose

The purpose of this paper is to investigate the accuracy of Australian Real Estate Investment Trust (A-REIT) initial public offering (IPO) dividend forecasts between 1994 and 2016.

Design/methodology/approach

This study compares the dividend forecasts of A-REIT IPOs for the first dividend forecast period in the prospectus, with the actual dividend declared for that forecast period. As well as simple descriptive summary measures, this study also employs an exact logistic regression approach to examine the factors that might influence the IPOs achieving or exceeding the dividend forecast.

Findings

The study identifies that the dividends declared, on average, were greater than the dividend forecast and that more than nine out of ten of the IPOs listed after 1999 achieved or exceeded their prospectus forecast. In addition the authors observe positive mean forecast errors, suggesting dividend forecasts in A-REIT IPOs, are cautiously biased. This is in contrast to the industrial company data reported in Brown et al. (2000) which suggest dividend forecasts are optimistically biased. The study also finds the A-REIT IPOs that did not forecast a dividend, generally did not pay a dividend.

Practical implications

The results will inform dividend seeking institutional and retail investors of the investment opportunities in A-REIT IPOs.

Originality/value

This paper adds to the discussion of the relative predictability of dividends of A-REIT IPOs compared to industrial company IPOs.

Details

Journal of Property Investment & Finance, vol. 38 no. 1
Type: Research Article
ISSN: 1463-578X

Keywords

Article
Publication date: 1 February 1983

S. Paul Roy

Analyst forecasts made approximately nine months prior to the end of year t are used as surrogates for market expectations of earnings and dividends of year t. A popular…

Abstract

Analyst forecasts made approximately nine months prior to the end of year t are used as surrogates for market expectations of earnings and dividends of year t. A popular mathematical expectations model is also used for comparison. Using the two factor asset pricing models to predict market betas, and to estimate abnormal security returns, cumulative average residuals are computed and partitioned on the sign of the two dividend information variables indicated in the preceding paragraph. The results were consistent with those of Watts and Gonedes in that no significant dividend information was detected.

Details

Journal of Economic Studies, vol. 10 no. 2
Type: Research Article
ISSN: 0144-3585

Article
Publication date: 1 January 1975

Michael Firth

Since the early 1960s there has been a considerable increase in formalised investment analysis in the UK. This can partly be evidenced by the growth in the membership of the…

Abstract

Since the early 1960s there has been a considerable increase in formalised investment analysis in the UK. This can partly be evidenced by the growth in the membership of the Society of Investment Analysts, the major professional body for practising analysts, whose numbers have grown from 100 in 1955 to 590 in 1962 and to 1,600 in July 1973. Prior to 1960 there were very few full time analysts in the employment of brokers and investment institutions.

Details

Managerial Finance, vol. 1 no. 1
Type: Research Article
ISSN: 0307-4358

Article
Publication date: 1 January 1985

Since the first Volume of this Bibliography there has been an explosion of literature in all the main areas of business. The researcher and librarian have to be able to uncover…

16648

Abstract

Since the first Volume of this Bibliography there has been an explosion of literature in all the main areas of business. The researcher and librarian have to be able to uncover specific articles devoted to certain topics. This Bibliography is designed to help. Volume III, in addition to the annotated list of articles as the two previous volumes, contains further features to help the reader. Each entry within has been indexed according to the Fifth Edition of the SCIMP/SCAMP Thesaurus and thus provides a full subject index to facilitate rapid information retrieval. Each article has its own unique number and this is used in both the subject and author index. The first Volume of the Bibliography covered seven journals published by MCB University Press. This Volume now indexes 25 journals, indicating the greater depth, coverage and expansion of the subject areas concerned.

Details

Management Decision, vol. 23 no. 1
Type: Research Article
ISSN: 0025-1747

Keywords

Article
Publication date: 1 December 2000

Niamh Brennan and Sidney J. Gray

Profit forecasts are rarely disclosed in the UK except in prospectuses, circulars and during takeover bids. There are few regulations governing the content of profit forecasts

1131

Abstract

Profit forecasts are rarely disclosed in the UK except in prospectuses, circulars and during takeover bids. There are few regulations governing the content of profit forecasts. Under stock exchange rules these forecasts must be reported on by both reporting accountants and the merchant bankers advising on the deal. The format of the forecasts is at the discretion of individual companies. This paper summarises the regulations, including professional pronouncements, governing accountants’ reports on profit forecasts. Practical examples of such accountants’ reports extracted from 250 profit forecasts published during 701 UK takeover bids in the period 1988 to 1992 are reproduced and discussed. These examples provide useful precedent material for practitioners involved in reporting on a profit forecast. The paper concludes with a discussion of policy issues and suggestions for policy makers.

Details

Managerial Auditing Journal, vol. 15 no. 9
Type: Research Article
ISSN: 0268-6902

Keywords

Article
Publication date: 3 April 2019

David A. DeBoeuf

The purpose of this paper is to outline the problems encountered by a student-managed investment program (SMIP) when the pool of qualified finance majors is limited in number…

Abstract

Purpose

The purpose of this paper is to outline the problems encountered by a student-managed investment program (SMIP) when the pool of qualified finance majors is limited in number. Restructuring the program to a single-semester course and opening the class to motivated/intelligent non-finance majors increased the number of applicants, but resulted in alternative difficulties, particularly time constraints and inadequate student preparedness. A prerequisite exam and regimented classroom structure were the solutions.

Design/methodology/approach

The paper discusses the problems encountered and solutions devised to address the early year difficulties experienced by a newly developed SMIP at a relatively small university. The core of the paper chronicles the classroom approach to solving the main problem of a single-semester portfolio management course, the handling of an investment learning curve in a short period of time.

Findings

Though empirically limited due to the program’s infancy, portfolio performance has been encouraging and student feedback exceptional. Regarding the former, stocks purchased by the fund have created greater wealth in total than that of equal dollar investments in an S&P500 index fund.

Practical implications

Universities interested in running a student-managed fund should feel secure in a one-semester approach, regardless of talent pool size, as measured by the number of motivated, intelligent finance majors.

Originality/value

Aside from the uniqueness of requiring a mastery of entrance exam investing materials prior to the first class, this paper’s outline of core portfolio management activities includes several strategies and methods meant to streamline the process within a groupthink design.

Details

Managerial Finance, vol. 46 no. 4
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 14 March 2016

H. Kent Baker and Imad Jabbouri

The purpose of this paper is to survey managers of firms listed on the Casablanca Stock Exchange (CSE) to learn their views about the factors influencing dividend policy, dividend

2235

Abstract

Purpose

The purpose of this paper is to survey managers of firms listed on the Casablanca Stock Exchange (CSE) to learn their views about the factors influencing dividend policy, dividend issues, and explanations for paying dividends. It compares the results to similar dividend surveys in the USA, Canada, Indonesia, and India.

Design/methodology/approach

The study uses a mail survey of CSE listed firms that paid one or more cash dividends to common stock holders between June 1, 2010 and September 30, 2014 as the primary means of collecting data.

Findings

The evidence shows that the most important determinants of a firm’s dividend policy are the level of current earnings, stability of earnings, and needs of current shareholders. A significant correlation exists between the overall rankings of the 25 factors influencing dividend policy between managers of Moroccan firms and those of USA, Canadian, Indonesian, and Indian firms. Managers of Moroccan firms perceive that dividend policy affects firm value. Managers view multiple theories including signaling, agency, catering, and life cycle explanations as credible and contribute in explaining why their firms pay dividends.

Research limitations/implications

Despite a high response rate of almost 55 percent, the number of responses limits the ability to divide the sample firms by size, industry, and other characteristics and to test for statistically significant differences between various groups.

Originality/value

This is the first survey-based research designed to document how Moroccan managers view dividends. Although evidence suggests that some factors are consistently more important than others, no universal set of factors is likely to be applicable to all firms.

Details

Managerial Finance, vol. 42 no. 3
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 1 March 1996

A.A. Lonie, G. Abeyratna, D.M. Power and C.D. Sinclair

Investigates the stock market response to interactive dividend and earnings announcements by a sample of 620 UK companies over the period January to June 1991. First, examines the…

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Abstract

Investigates the stock market response to interactive dividend and earnings announcements by a sample of 620 UK companies over the period January to June 1991. First, examines the possibility that the response to a dividend announcement may be influenced by whether the dividend is being increased, decreased or left unchanged. US studies suggest that this may indeed be the case and acknowledge the role of the dividend as a signal to investors; dividend increases tend to be associated with positive abnormal returns, and dividend decreases tend to be associated with negative abnormal returns around the time of the dividend announcement. Second, recognizes that identifying a unique dividend information announcement effect is particularly difficult in the UK because UK dividends are almost invariably announced simultaneously with information about corporate earnings. Addresses this problem by focusing on those occasions when the signals associated with these announcements conflict with one another ‐ where dividends are increased and earnings decrease or vice versa. The influence of combinations of dividend and earnings news is found to be important in explaining the share price reaction on the announcement day.

Details

Journal of Economic Studies, vol. 23 no. 1
Type: Research Article
ISSN: 0144-3585

Keywords

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