A Dividend Yield-based Trading Rule with Industry Data

There is significant and ongoing debate regarding the power of dividend ratios to predict returns. Many papers statistically study the predictive ability of dividend yields using a broad market index, such as the S&P 500, both "in-sample" and "out-of-sample". Another area of study tests the economic strength of using dividend ratios as a primary input to a trading model or rule, again using a broad market index. This paper examines the robustness of tests of a dividend trading rule using disaggregated data from 12 Industry sub-indices.