Dividend Variability and Stock Market Swings
AbstractThis paper examines the extent to which swings in stock prices can be related to variations in the discounted value of expected future dividends when investors face uncertainty about their future behavior. The author develops an econometric model that accounts for the instability of U.S. dividend growth and discount rates during the past 120 years. Estimates of the model reveal that changing forecasts of future dividend growth account for more than 90 percent of the predictable variations in dividend prices. The estimates also imply that instability in the dividend and discount rate processes contribute significantly to the predictability of long-horizon stock returns. Copyright 1998 by The Review of Economic Studies Limited.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Review of Economic Studies.
Volume (Year): 65 (1998)
Issue (Month): 4 (October)
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