NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Measuring the Persistence of Expected Returns

John Y. Campbell

NBER Working Paper No. 3305 (Also Reprint No. r1614)
Issued in March 1990
NBER Program(s):   ME

This paper summarizes earlier research On the sources of variation in monthly U.S. stock returns in the period 1927-88. A log-linear model is used to break unexpected returns into changing expectations about future dividends and changing expectations about future returns. Even though stock returns are not highly forecastable, the model attributes one-third of the variation in returns to changing expected returns, one-third to changing future dividends, and one-third to the covariance between these components. Changing expected returns have a large effect on the stock market because their movements are persistent and negatively correlated with changing expected dividends.

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Document Object Identifier (DOI): 10.3386/w3305

Published: The American Economic Review, Vol. 80, No. 2, pp. 43-47, (May 1990). citation courtesy of

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