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Predicting the Equity Premium with Dividend Ratios

  • Amit Goyal
  • Ivo Welch

Our paper suggests a simple recursive residuals (out-of-sample) graphical approach to evaluating the predictive power of popular equity premium and stock market time-series forecasting regressions. When applied, we find that dividend-ratios should have been known to have no predictive ability even prior to the 1990s, and that any seeming ability even then was driven by only two years, 1973 and 1974. Our paper also documents changes in the time-series processes of the dividends themselves and shows that an increasing persis-tence of dividend-price ratio is largely responsible for th

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File URL: http://icfpub.som.yale.edu/publications/2437
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Paper provided by Yale School of Management in its series Yale School of Management Working Papers with number amz2437.

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Date of creation: 01 Apr 1999
Date of revision: 01 Nov 2002
Handle: RePEc:ysm:somwrk:amz2437
Contact details of provider: Web page: http://icf.som.yale.edu/

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  10. Goetzmann, W.N., 1990. "Testing The Predictive Power Of Dividend Yields," Papers fb-_90-12, Columbia - Graduate School of Business.
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  18. Ball, Ray, 1978. "Anomalies in relationships between securities' yields and yield-surrogates," Journal of Financial Economics, Elsevier, vol. 6(2-3), pages 103-126.
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