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Exact Linear Present Value

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  • Lee, Woongki

    (Yonsei University)

Abstract

In this study, we propose an exact, level-based counterpart to the widely used loglinear present value framework. This level-based framework preserves the core economic content of the loglinear approach while eliminating the need for approximation. The framework, however, goes beyond exactness. It also allows a richer analysis of price dynamics. Price changes are separated into anticipated movements and expectation revisions, and each component is further decomposed into cash-flow and discount-rate contributions. We apply the framework empirically to characterize aggregate stock price movements.

Suggested Citation

  • Lee, Woongki, 2026. "Exact Linear Present Value," SocArXiv 9pngz_v1, Center for Open Science.
    • Handle: RePEc:osf:socarx:9pngz_v1
    DOI: 10.31235/osf.io/9pngz_v1
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    References listed on IDEAS

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    3. Campbell, John Y, 1991. "A Variance Decomposition for Stock Returns," Economic Journal, Royal Economic Society, vol. 101(405), pages 157-179, March.
    4. Campbell, John Y & Ammer, John, 1993. "What Moves the Stock and Bond Markets? A Variance Decomposition for Long-Term Asset Returns," Journal of Finance, American Finance Association, vol. 48(1), pages 3-37, March.
    5. John Y. Campbell, Robert J. Shiller, 1988. "The Dividend-Price Ratio and Expectations of Future Dividends and Discount Factors," The Review of Financial Studies, Society for Financial Studies, vol. 1(3), pages 195-228.
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