English, Article, Journal or magazine article edition: Another Look to the Price-Dividend Ratio: A Markov-Switching Approach. Juan M. Londoño; Marta Regulez; Jesús Vázquez

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Bookmark: http://trove.nla.gov.au/version/183276
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Another Look to the Price-Dividend Ratio: A Markov-Switching Approach.
Author
  • Juan M. Londoño
  • Marta Regulez
  • Jesús Vázquez
Physical Description
  • preprint
Notes
  • A necessary condition for the validity of the present value model is that the price-dividend ratio must be stationary. However, significant market episodes in the late 20th century seem to provide evidence of nonstationarity. This paper analyzes the stationarity of this ratio in the context of a Markov-switching model à la Hamilton (1989) where an asymmetric speed of adjustment is introduced. This particular specification robustly supports a nonlinear reversion process and identifies two relevant episodes: the post-war period from the mid-50’s to the mid-70’s and the so called “90’s boom” period. A three-regime Markov-switching model displays the best regime identification and reveals that only the first part of the 90’s boom (1985-1995) and the post-war period are near-nonstationary states. Interestingly, the last part of the 90’s boom (1996-2000), characterized by a growing price-dividend ratio, is entirely attributed to a regime featuring a highly reverting process.
  • Markov regime-switching, price-dividend ratio stationarity
  • RePEc:ehu:dfaeii:200809
Language
  • English
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