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Title - Dividend Yields and Stock Returns: Evidence of Time Variation between Bull
and Bear Markets
Authors-
prices, and firm size in the 1988 Compustat PDE and INDUSTRIAL tapes during the fifteenyear period from January 1969 to December 1984.
Data Used- For each month the overall sample is divided into six portfolios, five
ranked according to dividend yield quintile and a sixth portfolio of zero-dividend
firms. The yield measure employed is the long-run measure. The short-run measure
used here differentiates between the yield in those months when the stock goes
exdividend and months when it does not. The long-run measure defines yield on an
annual basis.
Statistical Tools Used - Dividend yield is calculated as the study extends on
examining the yield-return relations. Yield measure also helps in comparing the
results. Another long run dividend yield method is adopted which exclude extra
dividends in the calculation of yield. Portfolio returns are calculated using equally
weighted returns for securities in each portfolios. A time series is produced which
helps in the direct comparison with the results of Lockwood and McInish, whose
sample periods ends at the same time.
Variables Used - Rit is return for portfolio i in the month t. Rft is the riskless rate of
return in the month t. DBt is a dummy variable for the presence or absence
of bear markets. Rmt is the return on the market portfolio.
Findings / Conclusion:
Results show that average monthly stock returns are positively associated to
dividend yields during bear markets and negatively associated to dividend yields
during bull markets for the whole study period extending from 1970 through 1984,
as well as for 3 non-overlapping 5 year sub-periods.
Even when we control the market risk, firm size, and the January effects, returns are
positively associated to dividend yields during bear markets and negatively during
bull markets.
High yield stocks show better performance during bear markets than a constantcoefficient market model would predict. This result supports that high-yield stocks
are more resistant to market declines than are low-yield stocks.
Resistance to price declines during bear markets for high yield stocks is shown
regardless of the particular definition of bull and bear markets. Using a short-run,
up-versus-down market definition, the resistance is manifested in higher returns
throughout bear markets.
The beta shifts throughout bear markets for high yield stocks are significantly
different from shifts for low yield stocks.
The relationship between return and yield can be specific to any period under
examination