TY  - JOUR
AU  - Goyal,Amit
AU  - Welch,Ivo
TI  - Predicting the Equity Premium With Dividend Ratios
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8788
PY  - 2002
Y2  - February 2002
UR  - http://www.nber.org/papers/w8788
L1  - http://www.nber.org/papers/w8788.pdf
N1  - Author contact info:
Amit Goyal
HEC
University of Lausanne
Switzerland
E-Mail: amit.goyal@unil.ch

Ivo Welch
Anderson School at UCLA (C519)
110 Westwood Place (951481)
Los Angeles, CA 90095-1482
E-Mail: ivo.welch@anderson.ucla.edu
AB  - Our paper reexamines the forecasting regressions which predict annual aggregate stock market returns net of the risk-free rate with lagged aggregate dividend-yield ratios and dividend-price ratios.  Prior to 1990, the conditional dividend yield could reliably outperform the historical equity premium mean in predicting future equity premia *in-sample*. But our paper shows that the dividend ratios could not outperform the prevailing unconditional mean *out-of-sample*, plus any residual power was directly related to only two years, 1974 and 1975.  As of 2000, even this in-sample predictive ability has disappeared.  Our paper also documents changes in the time-series processes of the dividends themselves and shows that an increasing persistence of dividend-price ratio is largely responsible for weak stock return predictability.
ER  -