What is the Chance that the Equity Premium Varies over Time? Evidence from Regressions on the Dividend-Price Ratio

Jessica Wachter () and Missaka Warusawitharana

No 17334, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We examine the evidence on excess stock return predictability in a Bayesian setting in which the investor faces uncertainty about both the existence and strength of predictability. When we apply our methods to the dividend-price ratio, we find that even investors who are quite skeptical about the existence of predictability sharply modify their views in favor of predictability when confronted by the historical time series of returns and predictor variables. Correctly taking into account the stochastic properties of the regressor has a dramatic impact on inference, particularly over the 2000-2005 period.

JEL-codes: C11 C22 G11 G17 (search for similar items in EconPapers)
Date: 2011-08
New Economics Papers: this item is included in nep-bec and nep-upt
Note: AP
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Citations: View citations in EconPapers (6)

Published as What is the chance that the equity premium varies over time? Evidence from regressions on the dividend-price ratio, with Missaka Warusawitharana, forthcoming, Journal of Econometrics.

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Journal Article: What is the chance that the equity premium varies over time? Evidence from regressions on the dividend-price ratio (2015)
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