Analysts' Dividend Forecasts, Portfolio Selection, and Market Risk Premia

32 Pages Posted: 3 Mar 2008

See all articles by Franziska Becker

Franziska Becker

NORD/LB

Wolfgang Breuer

RWTH Aachen University

Marc Gürtler

University of Braunschweig - Institute of Technology, Department of Finance

Date Written: February 22, 2007

Abstract

The most relevant practical impediment to an application of the Markowitz portfolio selection approach is the problem of estimating return moments, in particular return expectations. We analyze the consequences of using return estimates implied by analysts' dividend forecasts under the explicit notion of taxes and non-flat term structures of interest rates and achieve quite good performance results. As a by-product, these results cast some doubt upon the adequacy of estimating market risk premia with implied returns, because estimation techniques with good performance results are hardly suited to describe market expectations.

Keywords: analysts` forecasts, CAPM, implied returns, market risk premium, portfolio optimization, return estimation

JEL Classification: G11, G12, G14

Suggested Citation

Becker, Franziska and Breuer, Wolfgang and Gürtler, Marc, Analysts' Dividend Forecasts, Portfolio Selection, and Market Risk Premia (February 22, 2007). Available at SSRN: https://ssrn.com/abstract=964860 or http://dx.doi.org/10.2139/ssrn.964860

Franziska Becker

NORD/LB ( email )

Friedrichswall 10
Hannover, 30159
Germany

HOME PAGE: http://www.nordlb.de

Wolfgang Breuer

RWTH Aachen University ( email )

Templergraben 55
D-52056 Aachen, 52056
Germany

Marc Gürtler (Contact Author)

University of Braunschweig - Institute of Technology, Department of Finance ( email )

Abt-Jerusalem-Str. 7
Braunschweig, 38106
Germany

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