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Stock Prices, Earnings, and Expected Dividends

Stock Prices, Earnings, and Expected Dividends 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. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Finance Wiley

Stock Prices, Earnings, and Expected Dividends

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References (16)

Publisher
Wiley
Copyright
1988 The American Finance Association
ISSN
0022-1082
eISSN
1540-6261
DOI
10.1111/j.1540-6261.1988.tb04598.x
Publisher site
See Article on Publisher Site

Abstract

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.

Journal

The Journal of FinanceWiley

Published: Jul 1, 1988

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