Low Correlations between Dividends and Returns: The Alitalia's Case

F. Cecconi and S. Zappacosta (Italy)

Keywords

Agent based simulation, Financial market modeling, Econophysics, GARCH Model.

Abstract

In financial modeling, the return from dividends over the long term has been a significant contributor to the total re turns produced by equity securities [1][2][3]. There is an abundance of empirical evidence which suggests that port folios consisting of higher dividend yielding securities pro duce returns that are attractive with respect to lower yield ing portfolios and to overall stock market returns over long measurement periods. Nevertheless, the dynamic of returns for equity securities with low (or no) dividend, over the medium period, shows some intriguing features. Which conditions lead to high returns? Which agent-based mi cro model can be used to explain the macro dynamic of returns? We study the value of Alitalia’s stocks, in the period from October the 22-nd 2002 to October the 22-nd 2007. We use an agent-based model, based on chartist and funda mentalists behavior. We could sketch the results into two categories. 1. For low profitability firms (low or no dividends) we found distinctive variations in autocorrelations func tions of returns just before growth of returns. 2. We use a novel qualification for returns, the return’s closeness, to explain these variations on the whole the performance of returns.

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