Document Type
Discussion Paper
Publication Date
12-1-1986
CFDP Number
812
CFDP Pages
39
Abstract
A linearization of a rational expectations present value model for corporate stock prices produces a simple relation between the log dividend-price ratio and mathematical expectations of future log real dividend changes and future real discount rates. This relation can be tested using vector autoregressive methods. Three versions of the linearized model, differing in the measure of discount rates, are tested for United States time series 1981-1986: versions using real interest rate data. The results yield a metric to judge the relative importance of real dividend growth, measured real discount rates and unexplained factors in determining the dividend-price ratio.
Recommended Citation
Campbell, John Y. and Shiller, Robert J., "The Dividend-Price Ratio and Expectations of Future Dividends and Discount Factors" (1986). Cowles Foundation Discussion Papers. 1055.
https://elischolar.library.yale.edu/cowles-discussion-paper-series/1055