Predictive Regressions: A Present-Value Approach

60 Pages Posted: 16 Aug 2010 Last revised: 10 Jun 2023

See all articles by Jules H. van Binsbergen

Jules H. van Binsbergen

University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)

Ralph S. J. Koijen

University of Chicago - Booth School of Business; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

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Date Written: August 2010

Abstract

We propose a latent variables approach within a present-value model to estimate the expected returns and expected dividend growth rates of the aggregate stock market. This approach aggregates information contained in the history of price-dividend ratios and dividend growth rates to predict future returns and dividend growth rates. We find that returns and dividend growth rates are predictable with R-squared values ranging from 8.2% to 8.9% for returns and 13.9% to 31.6% for dividend growth rates. Both expected returns and expected dividend growth rates have a persistent component, but expected returns are more persistent than expected dividend growth rates.

Suggested Citation

van Binsbergen, Jules H. and Koijen, Ralph S. J., Predictive Regressions: A Present-Value Approach (August 2010). NBER Working Paper No. w16263, Available at SSRN: https://ssrn.com/abstract=1658290

Jules H. Van Binsbergen (Contact Author)

University of Pennsylvania - The Wharton School ( email )

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Ralph S. J. Koijen

University of Chicago - Booth School of Business ( email )

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Chicago, IL 60637
United States

HOME PAGE: http://faculty.chicagobooth.edu/ralph.koijen/

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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