Testing for nonlinear cointegration between stock prices and dividends

摘要: In a seminal paper, Campbell and Shiller(1987) investigate the existence of linear cointegration between aggregate US stock prices dividends, as predicted by simple equilibrium model constant expected asset returns. Their results were ambiguous. A null hypothesis no was marginally rejected in their data but implied estimates long run returns implausible. Imposing more credible return caused non rejection cointegration. Subsequent literature has met with similar mixed results. this paper we test for dividends eleven portfolios allowing smooth nonlinear adjustement to equilibrium. The motivation nonlinearity is transactions costs via time varying bid ask spread. idea that bid-ask spread particular general will affect on assets now well established. Existing focused either assets’ liquidity (see particular, Amihud Mendelson, henceforth, AM, JFE, Dec.1986, pp223-249) or possible adverse selection effects its market arising from asymmetric information about fundamental value (Merton, 1987, JOF, pp483-510) rather than per se. AM emphasise role through randomly drawn holding periods individual agents. predicts are an increasing concave function spreads. Once incoroporated empirical model, they find drives out size effect