Discount rates and cash flows: A local projection approach

Matthijs Lof and Henri Nyberg

Journal of Banking & Finance, 2024, vol. 162, issue C

Abstract: We develop flexible local projections to quantify the relative contributions of expected discount rates and cash flows to the variation of dividend yields. Local projections enable the incorporation of large information sets, the use of monthly data along with annual data, and the consideration of time variation in the dividend yield decomposition. By expanding the set of state variables and allowing for time-varying parameters, our results show that the variation of expected discount rates remains the primary contributor to market volatility, whereas the contribution of expected cash flows is considerably smaller.

Keywords: Dividend yield; Decomposition; Dividend growth; Local projections (search for similar items in EconPapers)
JEL-codes: C32 G12 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:162:y:2024:i:c:s0378426624000475

DOI: 10.1016/j.jbankfin.2024.107127

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