Stock Return Predictability: Evidence from Local, Regional and Global Dividend-Price Ratio Information
A new study of 48 international stock markets finds that global dividend-price ratios are the strongest predictors of future stock returns and dividend growth, surpassing local and regional measures. This effect is most pronounced in developed markets, while regions like the Gulf Cooperation Council and Eastern Europe show weaker global integration, offering unique diversification opportunities. Advanced statistical methods reveal that global economic conditions drive asset prices, but lagged US returns do not fully capture this predictive power.
What it examines
This paper studies how well stock returns and dividend growth can be predicted using dividend-price ratios at local, regional, and global levels. Using data from 48 international markets and advanced statistical methods, it aims to find which level of information best explains asset price movements and market integration.
What it concludes
Global dividend-price ratios provide the strongest predictability for stock returns and dividend growth, especially compared to local or regional data. These findings help investors identify diversification opportunities and improve market models. Future research could explore why some regions remain less connected to global financial trends.
Evidence objects
Global dividend-price ratios outperform local and regional measures in predicting future stock returns and dividend growth across 48 markets, especially in developed economies, highlighting the dominance of global economic conditions over local factors.
key_findings bullet 1 · key_findings · validation V0
Advanced statistical techniques, including principal components and dynamic factor analysis, reveal that risk channels are globally driven, while cashflow channels depend on a blend of local, regional, and global information, offering nuanced insights for investors.
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Notably, lagged US stock returnsoften used as a global proxyfail to match the predictive power of global dividend-price ratios, while unique diversification opportunities persist in less integrated regions like the GCC and Eastern Europe.
key_findings bullet 3 · key_findings · validation V0
This paper innovatively applies principal components and dynamic factor analysis to dividend-price ratios across local, regional, and global markets, revealing that global ratios most strongly predict stock returns. Its novel multi-level approach surpasses traditional single-country studies, offering fresh insights into market integration, diversification, and the broader relevance for quantitative finance research.
key_findings bullet 4 · key_findings · validation V0
Raw abstract and provenance
- … is key to our understanding of asset price movement (ie, … This paper examines predictability for stock returns and … of the source of asset price movement, these results will …
Source row: 1849 · abstract type: snippet