Feasibility

The Relationship between Stock Prices and Dividends: Evidence Based on Taiwan Panel Data Investigation

Corresponding author: Chi-Wei Su, Assistant Professor, Department of Finance, Providence University, Taichung, Taiwan. TEL: 886-4-2632-8001 ext. 13613. FAX: 886-4-2292-0677. Address: No. 200 Chung-Chi Rd., Shalu, Taichung, Taiwan 43301, R.O.C., E-Mail:cwsu@pu.edu.tw

Hsuling Chang, Assistant Professor, Department of Accounting and Information, Lin Tung University, Taichung, Taiwan. E-Mail: hsulingchang@mail.ltu.edu.tw

Chien-Chun Wei, Assistant Professor, Department of Finance, Providence University, Taichung, Taiwan., E-Mail:cwsu@pu.edu.tw

The Relationship between Stock Prices and Dividends: Evidence Based on Taiwan Panel Data Investigation

Chi-Wei Su[1]

Department of Finance, Providence University, Taichung, Taiwan

Hsu-Ling Chang

Department of Accounting and Information, Ling Tung University, Taichung, TAIWAN

Chien-Chun Wei

Department of Finance, Providence University, Taichung, Taiwan

ABSTRACT

In this study, we employ the newly developed panel unit root test and cointegration technique to determine the long-run relation between stock prices and dividends in Taiwan’s stock market during June 1991 to February 2005. Panel methods amplify the power and precision of the estimation procedures, allowing to concentrating on both the short- and long-run relations. The results indicate that there exists a significant cointegration relationship between stock prices and dividends. These findings further support the existence of stock price increases relative to fundamentals. Different from previous studies, our results reveal that stock prices adhere to dividends and rational bubbles were nonexistent in the Taiwan’s stock market.

Keywords: Present Value Model; Panel Unit Root Test; Panel Cointegration Test

1. Introduction

This study investigates whether rational bubbles were present in Taiwan stock market during June 1991...