The Orthogonal Response of Stock Returns to Dividend Yield and Price-to-Earning Innovations

Vichet Sum


This study investigates how returns on the S&P 500 index respond orthogonally to dividend yield and price-to-earning innovations.  The unrestricted vector autoregression (VAR) analysis of monthly data from 1871 to 2012 shows that the response of returns on the S&P 500 index to dividend yield innovation, based on the 12-month horizon, is positive in the first three months, negative in the 4th through 7th months and positive again after that.  The returns on the S&P 500 index are negative in the first five months following price-to-earning shock.  The Granger causality tests indicate a causal link between returns on the S&P 500 index, dividend yield and price-to-earning. This study offers an important implication for asset management and valuation.

Full Text:




  • There are currently no refbacks.

Copyright (c)

Accounting and Finance Research
ISSN 1927-5986 (Print)   ISSN 1927-5994 (Online) Email:

Copyright © Sciedu Press

To make sure that you can receive messages from us, please add the '' domain to your e-mail 'safe list'. If you do not receive e-mail in your 'inbox', check your 'bulk mail' or 'junk mail' folders.