The effects of economic policy uncertainty on stock market returns: Evidence from Brazil

This article investigates the effects of economic policy uncertainty on the Brazilian stock market. We link excess returns and dividend growth rates to the economic policy uncertainty index of Baker et al. (2016) and other control variables. In recent years, Brazil has experienced political tensions, which affected its economic policy. Therefore, this country is the most suitable environment to test the hypothesis that this measure of economic policy uncertainty has an informational content not wholly reflected in the usual constructs of economic uncertainty and economic distress. Our results show that economic policy uncertainty (i) correlates negatively with current excess stock returns; (ii) correlates positively with future excess stock returns, showing itself to be a good predictor of future performance of the stock market; (iii) is not significantly related to future dividend growth rates; and (iv) anticipates changes in discount rates.

International evidence on stock returns and dividend growth predictability using dividend yields

ABSTRACT This paper examines stock returns and dividend growth predictability using dividend yields in seven developed markets: United States of America (US), United Kingdom (UK), Japan, France, Germany, Italy, and Spain. Altogether, these countries account for around 85% of the Morgan Stanley Capital International (MSCI) World Index. The use of the long time series with up-to-date data allows the comparison not only between countries, but also across periods, putting into perspective the existence or not of noticeable changes since the 1980’s. The majority of the literature on this topic is US-centered. This emphasis on the US is even more pronounced when it comes to examining the relationship between the dividend unpredictability and dividend smoothing. There is also the need to know if the relationships already documented for the post-Second World War (WWII) period still hold during the last three decades, when stock markets were subjected to a high level of turbulence worldwide. The relationship between dividend yields and returns and dividend growth is central to understand the functioning of capital markets, and has considerable implications for capital asset pricing and investment strategies. Overall, the results show that even for developed capital markets there is no clear pattern on the predictive ability of dividend yields on stock returns and dividend growth, instead these relationships seem to be time-dependent and country-specific. For each country, the predictive ability of the dividend yield is examined in a first-order structural VAR framework by applying bootstrap significance tests and the degree of dividend smoothing is assessed using four partial-adjustment models for the dividend behavior. Additionally, an out-of-sample analysis is conducted using pseudo-R2 and a normal mean squared prediction error (MSPE) adjusted statistic. For the post-WWII period, returns are predictable, but dividends are unpredictable in the US and the UK, while the opposite pattern is observed in Spain and Italy. In Germany, there is some evidence of short-term predictability for both returns and dividends, while in France only returns are predictable. In Japan, neither variable can be forecasted. The dividend smoothing results show that dividends are more persistent in the US and the UK, however, there is no clear connection between dividend smoothness and predictability for the other countries. An important conclusion to retain from the out-of-sample analysis is that the predictability of returns after the WWII, especially present in the US, appeared to have been missing in the last three decades, most probably due to the turmoil experienced by the stock markets during this last period.

Dividend Aristocrats – A Comparative Analysis of Polish and American Dividend Companies During the Period of 2009–2017

Research background: This article describes the issue of dividend companies that are components of the WIG index and S&P 500 during the period 2009–2017.Purpose: The aim of the study was to identify similarities and differences in dividend payments by issuers during the period 2009–2017.Research methodology: It describes the assessment of investments in companies on the basis of the continuity and variability of dividends paid (taking into account the rate of dividend growth and the cumulated rate of dividends, statistical measures – median and standard deviation), as well as the comparison of issuers from the Polish and US stock exchange.Results: The results of the study confirm the existence of differences in dividend pay-outs by companies listed on both exchanges.Novelty: First of all, Polish dividend companies are characterised by a higher average annual dividend growth rate and an average annual rate of return. What is more important, the average accumulated dividend (as well as its median) of companies from the WIG index is higher than the same group of companies belonging not only to the S&P 500 index companies, but also to American dividend aristocrats.