Filtering Out Expected Dividends and Expected Returns

Oleg Rytchkov ()
Additional contact information
Oleg Rytchkov: Fox School of Business, Temple University, 1801 Liacouras Walk, 423 Alter Hall (006-01), Philadelphia, PA 19122, USA

Quarterly Journal of Finance (QJF), 2012, vol. 02, issue 03, 1-56

Abstract: This paper applies a state space approach to the analysis of stock return predictability. It acknowledges that expected returns and expected dividends are unobservable and uses the Kalman filter to extract them from the observed history of realized dividends and returns. The suggested approach explicitly takes into account the time variation in expected dividend growth rates and exploits the present value relation. The obtained predictors for future returns are robust to structural breaks in the means of expected dividends and returns and more efficient than the dividend–price ratio. The likelihood ratio test reliably rejects the hypothesis of constant expected returns.

Keywords: Asset pricing; predictability; Kalman filter (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S2010139212500127
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:qjfxxx:v:02:y:2012:i:03:n:s2010139212500127

Ordering information: This journal article can be ordered from

DOI: 10.1142/S2010139212500127

Access Statistics for this article

Quarterly Journal of Finance (QJF) is currently edited by Fernando Zapatero

More articles in Quarterly Journal of Finance (QJF) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().