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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27302
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| Title: | Expected Returns and Expected Dividend Growth |
| Authors: | Lettau, Martin
Ludvigson, Sydney C. |
| Keywords: | Risk premia
dividend growth
cash-flow predictability
return predictability |
| Issue Date: | 24-May-2004 |
| Series/Report no.: | S-MF-04-06 |
| Abstract: | We investigate a consumption-based present value relation that is a
function of future dividend growth. Using data on aggregate consumption
and measures of the dividend payments from aggregate wealth, we show
that changing forecasts of dividend growth are an important feature of
the post-war U.S. stock market, despite the failure of the
dividend-price ratio to uncover such variation. In addition, these
dividend forecasts are found to covary with changing forecasts of excess
stock returns. The variation in expected dividend growth we uncover is
positively correlated with changing forecasts of excess returns and
occurs at business cycle frequencies, those ranging from one to six
years. This covariation is important because positively correlated
fluctuations in expected dividend growth and expected returns have
offsetting affects on the log dividend-price ratio. The results
therefore imply that both the market risk-premium and expected dividend
growth vary considerably more than what can be revealed using the log
dividend-price ratio alone as a predictive variable. |
| URI: | http://hdl.handle.net/2451/27302 |
| Appears in Collections: | Macro Finance
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