NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Predictive Regressions: A Present-value Approach

Jules H. van Binsbergen, Ralph S.J. Koijen

NBER Working Paper No. 16263
Issued in August 2010
NBER Program(s):   AP   HC

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 R-squared 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.

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Document Object Identifier (DOI): 10.3386/w16263

Published: van Binsbergen, Jules H. and Ralph S.J. Koijen, Predictive Regressions: A Present-Value Approach, Journal of Finance, August 2010, 65(4), 1439-1471. citation courtesy of

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