Document Type

Conference Proceeding

Publisher

Modelling and Simulation Society of Australia and New Zealand and International Association for Mathematics and Computers in Simulation

Faculty

Business and Law

School

Accounting, Finance and Economics

RAS ID

9147

Comments

This article was originally published as: Allen, D. E., & Bujang, I. (2009). Stock Returns and Equity Premium Evidence Using Dividend Price Ratios and Dividend Yields in Malaysia. Proceedings of MODSIM 09. (pp. 1530-1536). Cairns.

Abstract

The empirical findings of Goyal and Welch (2003) and Cochrane (2006) suggested that dividend yields and dividend ratios are robust predictors of annual stock returns and annual equity premia. However, Goyal and Welch (2003) asserted that many researchers considered dividend yields to be a good predictor for the equity premium before the 1990s but not after the 1990s. We apply these models to the Malaysian market. Our general findings suggest that the in-sample performances of the KLCI Malaysian datasets present similar results to those predicted by Goyal and Welch (2003, 2006). Meanwhile, the Mincer-Zarnowitz (1969) regression forecast tests for out of sample performances illustrate poor predictability of stock returns and equity premiums using both dividend price ratios and dividend yields. Cochrane (2006) suggested that if stock returns and dividend growth are not predictable, then price growth must be forecastable to bring the dividend yields back to equilibrium after any shock given that the dividend yields are stationary. We find that the growth of dividends is predictable using data deflated by changes in the consumer price index. Thus, the overall results suggest that both dividend price ratio and dividend yield models have significant effects though the dividend yield model is a superior predictor of stock returns and equity premiums in the Malaysian context.

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