Hostname: page-component-7d8f8d645b-h5t26 Total loading time: 0 Render date: 2023-05-28T23:06:25.142Z Has data issue: false Feature Flags: { "useRatesEcommerce": true } hasContentIssue false

Dividend Predictability Around the World

Published online by Cambridge University Press:  22 August 2014

Jesper Rangvid
Affiliation:, Department of Finance, Copenhagen Business School, Solbjerg Plads 3, DK-2000 Frederiksberg, Denmark
Maik Schmeling
Affiliation:, Faculty of Finance, Cass Business School, City University London, 106 Bunhill Row, London EC1Y 8TZ, United Kingdom
Andreas Schrimpf
Affiliation:, Bank for International Settlements (BIS), Centralbahnplatz 2, CH-4002 Basel, Switzerland and Center for Research in Econometric Analysis of Time Series (CREATES).


We show that dividend-growth predictability by the dividend yield is the rule rather than the exception in global equity markets. Dividend predictability is weaker, however, in large and developed markets where dividends are smoothed more, the typical firm is large, and volatility is lower. Our findings suggest that the apparent lack of dividend predictability in the United States does not uniformly extend to other countries. Rather, cross-country patterns in dividend predictability are driven by differences in firm characteristics and the extent to which dividends are smoothed.

Research Articles
Copyright © Michael G. Foster School of Business, University of Washington 2015 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)


Ang, A. “Characterizing the Ability of Dividend Yields to Predict Future Dividends in Log-Linear Present Value Models.” Working Paper, Columbia University (2002).
Ang, A., and Bekaert, G.. “Stock Return Predictability: Is It There?Review of Financial Studies, 20 (2007), 651707.CrossRefGoogle Scholar
Bansal, R., and Yaron, A.. “Risks for the Long Run: A Potential Resolution of Asset Pricing Puzzles.” Journal of Finance, 59 (2004), 14811509.CrossRefGoogle Scholar
Campbell, J. Y. “A Variance Decomposition for Stock Returns.” Economic Journal, 101 (1991), 157179.CrossRefGoogle Scholar
Campbell, J. Y. “Consumption-Based Asset Pricing.” In Handbook of the Economics of Finance, Constantinides, G., Harris, M., and Stulz, R., eds. Amsterdam: North Holland (2003), 803887.Google Scholar
Campbell, J. Y., and Ammer, J.. “What Moves the Stock and Bond Markets? A Variance Decomposition for Long-Term Asset Returns.” Journal of Finance, 48 (1993), 337.CrossRefGoogle Scholar
Campbell, J. Y., and Cochrane, J. H.. “By Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior.” Journal of Political Economy, 107 (1999), 205251.CrossRefGoogle Scholar
Campbell, J. Y., and Shiller, R. J.. “The Dividend-Price Ratio and Expectations of Future Dividends and Discount Factors.” Review of Financial Studies, 1 (1988a), 195228.CrossRefGoogle Scholar
Campbell, J. Y., and Shiller, R. J.. “Stock Prices, Earnings and Expected Dividends.” Journal of Finance, 43 (1988b), 661676.CrossRefGoogle Scholar
Campbell, J. Y., and Thompson, S. B.. “Predicting the Equity Premium Out of Sample: Can Anything Beat the Historical Average?Review of Financial Studies, 21 (2008), 15091531.CrossRefGoogle Scholar
Chen, L. “On the Reversal of Return and Dividend Growth Predictability: A Tale of Two Periods.” Journal of Financial Economics, 92 (2009), 128151.CrossRefGoogle Scholar
Chen, L.; Da, Z.; and Priestley, R.. “Dividend Smoothing and Predictability.” Management Science, 58 (2012), 18341855.CrossRefGoogle Scholar
Chen, L., and Zhao, X.. “Return Decomposition.” Review of Financial Studies, 22 (2009), 52135249.CrossRefGoogle Scholar
Cochrane, J. H.Volatility Tests and Efficient Markets: Review Essay.” Journal of Monetary Economics, 27 (1991), 463485.CrossRefGoogle Scholar
Cochrane, J. H. “Explaining the Variance of Price-Dividend Ratios.” Review of Financial Studies, 5 (1992), 243280.CrossRefGoogle Scholar
Cochrane, J. H. “The Dog That Did Not Bark: A Defense of Return Predictability.” Review of Financial Studies, 21 (2008), 15331575.CrossRefGoogle Scholar
Cochrane, J. H. “Discount Rates.” Journal of Finance, 66 (2011), 10471108.CrossRefGoogle Scholar
DeAngelo, H.; DeAngelo, L.; and Skinner, D. J.. “Are Dividends Disappearing? Dividend Concentration and the Consolidation of Earnings.” Journal of Financial Economics, 72 (2004), 425456.CrossRefGoogle Scholar
Engsted, T., and Pedersen, T. Q.. “The Dividend-Price Ratio Does Predict Dividend Growth: International Evidence.” Journal of Empirical Finance, 17 (2010), 585605.CrossRefGoogle Scholar
Goyal, A., and Welch, I.. “Predicting the Equity Premium with Dividend Ratios.” Management Science, 49 (2003), 639654.CrossRefGoogle Scholar
Hodrick, R. J.Dividend Yields and Expected Stock Returns: Alternative Procedures for Inference and Measurement.” Review of Financial Studies, 5 (1992), 357386.CrossRefGoogle Scholar
Irvine, P. J., and Pontiff, J.. “Idiosyncratic Return Volatility, Cash Flows, and Product Market Competition.” Review of Financial Studies, 22 (2009), 11491177.CrossRefGoogle Scholar
Koijen, R., and van Binsbergen, J. H.. “Predictive Regressions: A Present-Value Approach.” Journal of Finance, 65 (2010), 14391471.Google Scholar
Larrain, B., and Yogo, M.. “Does Firm Value Move Too Much to Be Justified by Subsequent Changes in Cash Flow?Journal of Financial Economics, 87 (2008), 200226.CrossRefGoogle Scholar
Leary, M. T., and Michaely, R.. “Determinants of Dividend Smoothing: Empirical Evidence.” Review of Financial Studies, 24 (2011), 31793249.CrossRefGoogle Scholar
Lettau, M., and Ludvigson, S. C.. “Expected Returns and Expected Dividend Growth.” Journal of Financial Economics, 76 (2005), 583626.CrossRefGoogle Scholar
Lewellen, J. “Predicting Returns with Financial Ratios.” Journal of Financial Economics, 74 (2004), 209235.CrossRefGoogle Scholar
Lintner, J. “Distribution of Incomes of Corporations among Dividends, Retained Earnings and Taxes.” American Economic Review, 46 (1956), 97113.Google Scholar
Newey, W. K., and West, K. D.. “A Simple, Positive Semi-Definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix.” Econometrica, 55 (1987), 703708.CrossRefGoogle Scholar
Stambaugh, R. F. “Predictive Regressions.” Journal of Financial Economics, 54 (1999), 375421.CrossRefGoogle Scholar
Vuolteenaho, T. “What Drives Firm-Level Stock Returns?Journal of Finance, 57 (2002), 233264.CrossRefGoogle Scholar
White, H. “A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity.” Econometrica, 48 (1980), 817838.CrossRefGoogle Scholar