A0778
Title: Managerial habit formation and predictability
Authors: Christoph Wegener - Leuphana University Lueneburg (Germany) [presenting]
Abstract: Within a framework featuring managerial habit formation, closed-form expressions are derived for predictive regressions, in which the dividend-price ratio forecasts future dividend growth rates and returns. It is found that return predictability can arise from managerial habit persistence and time-varying discount rates. However, when discount rates are high (low), elevated dividend-price ratios predict lower (higher) subsequent returns. This result suggests that managerial and consumer habits exert opposing effects on return predictability. Furthermore, two empirical implications derived from the theoretical results are not rejected, underscoring the model's empirical relevance for asset pricing.
