Abstract
We use recent developments on threshold autoregressive models that allow deriving endogenously threshold effects to analyse the evolution of the US stock price–dividend relation over the period 1871 to 2004. More specifically, a mean-reverting dynamic behaviour of the stock price–dividend ratio should be expected once such threshold is reached. Our empirical results showed that significant adjustments would occur when, in a particular year, the stock price–dividend ratio had shown a decrease of more than 8.0% between the previous year and the fourth year before, which implies nonlinearities in the dynamic behaviour of the US stock price–dividend relation.
Acknowledgements
Author V. Esteve acknowledges financial support from the Department of Business, Universities and Science of the Valencian Government, through the projects ACOMP07/102 and GVAE2007-152, as well as from the Department of Education and Science of Castilla-La Mancha's Government, through the project PAI07-0021-51488. M. Prats wants to acknowledge the financial support of the project SEJ2006-05051 (Spanish Ministry of Education and Science).
Notes
1 These tests are the .
2 See Ng and Perron (Citation2001) and Perron and Ng (Citation1996) for a detailed description of these tests.
3 Note that for the test, the null hypothesis is rejected in favour of stationarity when the estimated value is smaller than the critical value.