@techreport{NBERw3246,
title = "A Variance Decomposition for Stock Returns",
author = "John Y. Campbell",
institution = "National Bureau of Economic Research",
type = "Working Paper",
series = "Working Paper Series",
number = "3246",
year = "1990",
month = "January",
doi = {10.3386/w3246},
URL = "http://www.nber.org/papers/w3246",
abstract = {This paper shows that unexpected stock returns must be associated with changes in expected future dividends or expected future returns A vector autoregressive method is used to break unexpected stock returns into these two components. In U.S. monthly data in 1927-88, one-third of the variance of unexpected returns is attributed to the variance of changing expected dividends, one-third to the variance of changing expected returns, and one-third to the covariance of the two components. Changing expected returns have a large effect on stock prices because they are persistent: a 1% innovation in the expected return is associated with a 4 or 5% capital loss. Changes in expected returns are negatively correlated with changes in expected dividends, increasing the stock market reaction to dividend news. In the period 1952-88, hanging expected. returns account for a larger fraction of stock return variation than they do in the period 1927-51.},
}