NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Explaining the Variance of Price Dividend Ratios

John H. Cochrane

NBER Working Paper No. 3157 (Also Reprint No. r1734)
Issued in November 1989
NBER Program(s):   EFG

This paper presents a bound on the variance of the price-dividend ratio and a decomposition of the variance of the price-dividend ratio into components that reflect variation in expected future discount rates and variation in expected future dividend growth. Unobserved discount rates needed to make the variance bound and variance decomposition hold are characterized, and the variance bound and variance decomposition are tested for several discount rate models, including the consumption based model, and models based on interest rates plus a constant risk premium.

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Document Object Identifier (DOI): 10.3386/w3157

Published: The Review of Financial Studies, Vol. 5, No. 2, pp. 243-280, (1992). citation courtesy of

 
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