The Dividend-Price Ratio and Expectations of Future Dividends and Discount Factors
Robert Shiller () and
John Campbell ()
No 812, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University
A linearization of a rational expectations present value model for corporate stock prices produces a simple relation between the log dividend-price ratio and mathematical expectations of future log real dividend changes and future real discount rates. This relation can be tested using vector autoregressive methods. Three versions of the linearized model, differing in the measure of discount rates, are tested for United States time series 1981-1986: versions using real interest rate data. The results yield a metric to judge the relative importance of real dividend growth, measured real discount rates and unexplained factors in determining the dividend-price ratio.
Keywords: Dividend-Price ratio; rational expectations; present value; vector autoregression; dividends; stock prices; discount rate (search for similar items in EconPapers)
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Published in Review of Financial Studies (Fall 1988), 1: 195-228; also in Andrew W. Lo (ed.), Market Efficiency: Stock Market Behavior in Theory and Practice, Edward Elgar, 1996
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Journal Article: The Dividend-Price Ratio and Expectations of Future Dividends and Discount Factors (1988)
Working Paper: The Dividend-Price Ratio and Expectations of Future Dividends and Discount Factors (1986)
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