Project Overview#
Replicating Stambaugh (1999), “Predictive Regressions”#
Does the dividend-price ratio predict stock returns? For decades the standard test regressed next month’s return on this month’s dividend yield and usually found a positive, “significant” slope. Stambaugh (1999) showed the test is broken in a quantifiable way: because the dividend yield is highly persistent and shares a price with the return, the OLS slope is biased upward in finite samples — a positive slope is what you should expect even when the true slope is zero.
This project rebuilds the data from CRSP, replicates the paper’s Table 1, Table 2, and Figure 1 within a stated tolerance, and extends every exhibit through 2024 — where we find the paper’s warning binds harder than it did in 1999: the gap between the naive and honest p-value has grown from threefold to tenfold.
Start here:
The walkthrough notebook — the guided tour: data construction, the bias mechanism, the replication, the update.
The interactive playground — drag two sliders and watch a regression invent predictability out of nothing.
The full report — the formal write-up with all exhibits (PDF).
Project Details