Predictive Regressions: A Present‐Value Approach

Jules van Binsbergen and Ralph Koijen

Journal of Finance, 2010, vol. 65, issue 4, 1439-1471

Abstract: We propose a latent variables approach within a present‐value model to estimate the expected returns and expected dividend growth rates of the aggregate stock market. This approach aggregates information contained in the history of price‐dividend ratios and dividend growth rates to predict future returns and dividend growth rates. We find that returns and dividend growth rates are predictable with R2 values ranging from 8.2% to 8.9% for returns and 13.9% to 31.6% for dividend growth rates. Both expected returns and expected dividend growth rates have a persistent component, but expected returns are more persistent than expected dividend growth rates.

Date: 2010
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https://doi.org/10.1111/j.1540-6261.2010.01575.x

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Working Paper: Predictive Regressions: A Present-value Approach (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:bla:jfinan:v:65:y:2010:i:4:p:1439-1471

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