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Stock Prices, Earnings, and Expected Dividends

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  • Campbell, John
  • Shiller, Robert

Abstract

Long historical averages of real earnings help forecast present values of future real dividends. With aggregate U.S. stock market data (1871-1986), a vector-autoregressive forecast of the present value of future dividends is, for each year, roughly a weighted average of moving-average earnings and current real price, with between two thirds and three fourths of the weight on the earnings measure. We develop the implications of this for the present-value model of stock prices and for recent results that long-horizon stock returns are highly forecastable.

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  • Campbell, John & Shiller, Robert, 1988. "Stock Prices, Earnings, and Expected Dividends," Scholarly Articles 3224293, Harvard University Department of Economics.
    • Handle: RePEc:hrv:faseco:3224293
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    References listed on IDEAS

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