%0 Journal Article
%T The Orthogonal Response of Stock Returns to Dividend Yield and Price-to-Earning Innovations
%A Vichet Sum
%J Accounting and Finance Research
%D 2012
%I 
%R 10.5430/afr.v2n1p47
%X 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.
%U http://www.sciedu.ca/journal/index.php/afr/article/view/2114