Stock Prices, Earnings, and Expected Dividends
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CitationCampbell, John Y., and Robert J. Shiller. 1988. Stock prices, earnings, and expected dividends, in Papers and Proceedings of the Forty-Seventh Annual Meeting of the American Finance Association, Chicago, Illinois, December 28-30, 1987. Journal of Finance 43, no. 3: 661-676.
AbstractLong 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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