Measuring the Persistence of Expected Returns
AbstractThis 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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Bibliographic InfoPaper provided by Harvard University Department of Economics in its series Scholarly Articles with number 3207696.
Date of creation: 1990
Date of revision:
Publication status: Published in American Economic Review
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3224293, Harvard University Department of Economics.
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