TY  - JOUR
AU  - Lamont,Owen
TI  - Earnings and Expected Returns
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5671
PY  - 1996
Y2  - July 1996
UR  - http://www.nber.org/papers/w5671
L1  - http://www.nber.org/papers/w5671.pdf
N1  - Author contact info:
Owen Lamont
Department of Economics
Harvard University
Cambridge MA 02138
E-Mail: owen.lamont@yale.edu
M2  - featured in NBER digest on 1996-10-01
AB  - The aggregate dividend payout ratio forecasts aggregate excess returns on both stocks and corporate bonds in post-war US data. Both high corporate profits and high stock prices forecast low excess returns on equities.  When the payout ratio is high, expected returns are high.  The payout ratio's correlation with business conditions gives it predictive power for returns; it contains information about future stock and bond returns that is not captured by other variables. The payout ratio is useful because it captures the temporary components of earnings.  The dynamic relationship between dividends, earnings and stock prices shows that a positive innovation in earnings lowers expected returns in the near future, but raises them thereafter.
ER  -