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Unformatted text preview: s the average annual return over the period. What are you to make of this shifting in advantage across periods? First, you should
consider the volatility a cautionary note. A strategy of investing in high dividend yield
stocks would have delivered mixed results over the sub-periods, working well in some
periods and not in others. Second, you could look at the periods where high dividend yield
stocks did best and try to find common factors that may help you fine-tune this strategy.
For instance, high dividend stocks may behave much like bonds in periods of high inflation
and rising interest rates and lose value. This would explain why they underperformed the
rest of the market between 1971 and 1990.
In a test of whether high dividend stocks are good defensive investments, you can
see whether high dividend paying stocks hold up better than non-dividend paying stocks
during bear markets. Using data from 1927 to 2001, the returns on highest dividend yield
stocks (top 20%) were compared to returns on the lowest dividend yield stocks (bottom
20%) in bull market years (where total market return exceeded 10%), bear market years
(where total market return was negative) and neutral years (where...
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This note was uploaded on 01/17/2012 for the course ECON 101 taught by Professor Econnorm during the Spring '11 term at Art Institutes Intl. Minnesota.
- Spring '11