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The Dividend-Price Ratio and Expectations of Future Dividends and Discount Factors

  • John Y. Campbell
  • Robert J. Shiller

A linearization of a rational expectations present value model for corporate stock prices produces a simple relation between the log dividend-price ratio and mathematical expectations of future log real dividend changes and future real discount rates. This relation can be tested using vector autoregressive methods. Three versions of the linearized model, differing in the measure of discount rates, are tested for U. S. time series 1871-1986: versions using real interest rate data, aggregate real consumption data, and return variance data. The results yield a metric to judge the relative importance of real dividend growth, measured real discount rates and unexplained factors in determining the dividend-price ratio.

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File URL: http://www.nber.org/papers/w2100.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 2100.

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Date of creation: Dec 1986
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Publication status: published as Review of Financial Studies 1988, Vol. 1, No. 3, pp. 195-228, (1988).
Handle: RePEc:nbr:nberwo:2100
Note: ME EFG
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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Web page: http://www.nber.org
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