NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Dividend-Price Ratio and Expectations of Future Dividends and Discount Factors

John Y. Campbell, Robert J. Shiller

NBER Working Paper No. 2100 (Also Reprint No. r1173)
Issued in December 1986
NBER Program(s):   ME   EFG

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 U. S. time series 1871-1986: versions using real interest rate data, aggregate real consumption data, and return variance 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.

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Document Object Identifier (DOI): 10.3386/w2100

Published: Review of Financial Studies 1988, Vol. 1, No. 3, pp. 195-228, (1988). citation courtesy of

 
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