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1995issue C081-5

Dividend-yield regression as a hold versus momentum gate

The archive used a quadratic-yield-regression as a buy-and-hold-meter from starting-dividend-yield to decade-ahead-return. Editorial reading: treat that meter as an evaluation gate for when a passive hold had historical support, and treat an intermediate-momentum-overlay as the complementary testable procedure when starting yields were low.

  • A monthly starting-dividend-yield series was aligned with the decade-ahead-return realized on the same broad index.
  • The quadratic-yield-regression was the buy-and-hold-meter used to judge whether an unconditional hold had historical statistical support.
  • A low-yield-correction-mark and a high-yield-accumulation-mark sat at opposite ends of that meter.
  • When starting yields were low, the procedure used an intermediate-momentum-overlay instead of an unconditional long hold.
Entries in this reading2 entries
Current trackMomentum strategy103 readingsLinear regression112 readings

What the archive aligned

A monthly series of broad-index dividend yields was aligned with the compound annual total return realized on the same index over the following ten years. That pairing is the buy-and-hold-meter: a historical mapping from the starting-dividend-yield, the trailing distribution rate observed on the index at the beginning of a forecast window, to the decade-ahead-return, the compound annual total return, including distributions, over the ten years that follow a yield observation.

How the regression was specified

The evaluation specified a quadratic-yield-regression with the decade-ahead-return as the dependent variable and the contemporaneous starting-dividend-yield as the explanatory input. The specification used yield and a squared yield term so the fitted path from starting yield to decade-ahead-return could bend. The fitted specification was reported with an adjusted R-squared of 0.83, a residual standard error of 1.80, and an F-statistic on 2 and 443 degrees of freedom.

S&P 500 10-year return versus starting dividend yield

Read this as a hold-versus-not gate, not a weekly timer. Starting yields near 3% sat on a model decade return around 0–2% annualized, while 6% and higher sat above 10%. The series is the solid quadratic overlay digitized from the postwar S&P 500 scatter, pinned to the article’s May 1995 mark of a 2.81% yield implying about 0.5% a year.
Read this as a hold-versus-not gate, not a weekly timer. Starting yields near 3% sat on a model decade return around 0–2% annualized, while 6% and higher sat above 10%. The series is the solid quadratic overlay digitized from the postwar S&P 500 scatter, pinned to the article’s May 1995 mark of a 2.81% yield implying about 0.5% a year.S&P 500 · monthly starting yield; 10-year forward return · 1947-01-01T00:00:00.000Z to 1985-12-31T00:00:00.000Z

Quadratic fit of 10-year compound annual total return on monthly S&P 500 dividend yield; last starting month in the fit is February 1985. Curve values are read from the published plot, not from printed coefficients. Adjusted R-squared was 0.83.

How the postwar sample was closed

The postwar sample was constructed so that the final complete ten-year return window began around March 1985 and used the February 1985 yield as its starting observation.

Yield marks and the complementary overlay

Historical charts treated an index yield below 3 percent as a low-yield-correction-mark, a condition often followed, after a short interval, by a sharp index decline. A yield above 6 percent was treated as a high-yield-accumulation-mark, a historically noted condition in which a very high index yield coincided with cycle lows and was treated as a traditional practitioner entry cue.

When starting yields were low, the proposed procedure replaced an unconditional long hold with an intermediate-momentum-overlay, a rule that permits equity exposure only when an intermediate-horizon momentum confirmation is present. A mid-1960s starting yield near 3 percent was used as the analog for a later decade of repeated advances and declines rather than a smooth passive hold.

Educational research material, not investment advice. Historical source context does not establish present-day performance.
20 of 51 in the Momentum strategy track
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  42. 2018A three-state overlay that colors a trend only after the line clears the bar
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  44. 2018Emotion as a rule input when momentum breaks
  45. 2018Two-bar body expansion as a momentum breakout construction
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By fieldTime series and forecasting51 readingsBy year199575 readings
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