Wan Mahmood, Wan Mansor and Abdul Fatah, Faizatul Syuhada (2007): Multivariate Causal Estimates of Dividend Yields, Price Earning Ratio and Expected Stock Returns: Experience from Malaysia.
Download (193kB) | Preview
The study examines the relationship among Malaysian’s market stock return, dividend yields and price earnings rato. Specifically, it examines the existence of long-run and short-run relationship and also their predictive power (causality) between and among market stock return, dividend yieds and price earnings. Using the monthly data from 1989-2005, the study finds that all these fundamental variables have a strong long run relationship. As for the short run relationship, the results show significant positive predictive power from dividend yield to stock return and significant negative relation from stock returns toprice earning ratios. In addition, applyingmultivariate causality test, the results show that both dividend yields and price earning ratio Granger cause (predict) the stock return. Similar results are found from stock returns and P/E ratio to dividend yield, as well as from dividend yied and stock returns to P/E raton but with lesser magnitude. Thus, fundamental variables are an important source of nformation in determnng stock market returns and useful to investors and other marke participants in deciding their investment strategies.
|Item Type:||MPRA Paper|
|Original Title:||Multivariate Causal Estimates of Dividend Yields, Price Earning Ratio and Expected Stock Returns: Experience from Malaysia|
|Keywords:||Stock return, dividend yield, price earning ratio, Malaysian market|
|Subjects:||G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill
G - Financial Economics > G2 - Financial Institutions and Services > G20 - General
|Depositing User:||WANMANSOR WANMAHMOOD|
|Date Deposited:||13. Apr 2009 04:58|
|Last Modified:||13. Feb 2013 04:57|
Ajayi, R. and Mougoue, M, 1996, On the Dynamic Relation between Stock Prices and Exchange Rates, Journal of Financial Research, XIX, pp.193-207.
Akaike, H. 1969, Statistical predictor identification. Annals of the Institute of Statistical Mathematics, pp.203 – 217.
Banz and Rolf, W. 1981, The Relationship Between Return and Market Value stocks. Journal of Financial Economics, 9, pp.3-18.
Basu, S. 1975, The Information Content of Price-Earnings Ratios. Financial Management 4, pp.53-64.
Basu, S. 1983. The Relationship between Earnings Yield, Market Value, and Return for NYSE Common Stocks: Further Evidence. Journal of Financial Economics, 12, pp.129-156.
Campbell, J.Y. and Shiller R.J. 1988a, Stock Prices, Earnings, and Expected Dividends, The Journal of Finance, 43, pp. 661-676.
Campbell, J.Y and Shiller, R.J. 1988b, The Dividend-Price Ratio and Expectations of Future Dividends and Discount Factors, Review of Financial Studies, 1, pp.195-228.
Davidson, R. and MacKinnon, J. G. 1993. Estimation and Inference in Econometrics. Oxford University Press, Oxford.
Dickey, D. A. and Fuller, W. A. (1979). Distribution of the estimators for autoregressive time series with a unit root, Journal of the American Statistical Association, 74, pp.427 – 431.
Engle, R. F. and Granger, C. W. J. (1987). Cointegration and error correction: Representation, estimation and testing. Econometrica, 55, pp.251 – 276.
Fama, E. 1991, Efficient Capital Markets: II, Journal of Finance, 46, pp.1575-617.
Fama, E. and .French, K.1988, Dividends Yields and Expected Stock Returns, Journal of Financial Economics, 22, pp.3-25.
Fama, E.and French, K. 1992, The Cross-Section Of Expected Stock Returns. Journal of Finance, 47, pp.427-465.
Goetzmann, W. and Jorion P. 1993, Testing the Predictive Power of Dividend Yields. Journal of Finance, 48, pp.663-679.
Hodric, R.J. 1992, Dividend Yields and Expected Stock Returns: Alternative Procedures for Inference and Measurement, The Review of Financial Studies, 5, pp.357-386.
Johansen, S. 1988, Statistical analysis of cointegration vectors. Journal of Economic Dynamics and Control, 12, pp.231 – 254.
Johansen, S. 1991, Estimation and hypothesis testing of cointegration vectors in gaussian autoregressive models. Econometrica, 59, pp.1551 – 1580.
Johansen, S. and Juselius, K. 1990. Maximum likelihood estimation and inference on cointegration – with applications to the demand for money. Oxford Bulletin of Economics and Statistics, 52, pp.169 – 210.
Kothari, S.P. and Shanken, J. 1992, Stock Return Variation and Expected Dividends, A Time-Series and Cross-Sectional Analysis, Journal of Financial Economics, 11, pp.117-210.
Lamont, O, 1998, Earnings and Expected Returns, Journal of Finance, 53, pp.1563-1587.
Lo, A., and MacKinlay, A.G. 1988, Stock Market Prices Do Not Follow Random Walks: Evidence of Simple Specification Tests, Review of Financial Studies , 1, pp.41- 66.
Ma, C.K. and Kao, G.W. 1990, On Exchange Rate Changes and Stock Price Reactions, Journal of Business Finance and Accounting, 17, pp.441-449.
Osterwald-Lenum, M. 1992, A Note with Quantiles of the Asymptotic Distribution of the Maximum Likelihood Cointegration Rank Test Statistics, Oxford Bulletin of Economics and Statistics, 54, pp.461-472.
Nieh, C.C and Lee, C.F, 2001, Dynamic Relationship Between Stock Prices and Exchange Rates for G-7 Countries, Quarterly Review of Economics and Finance, 41, pp.477-490.
Poterba, J.M. and Summer, L.H 1988, Mean Reversion in Stock Prices Evidence and Implications, Journal of Financial Economics, 22, pp.27-59.