Start of Main Content
Journal Article
Dividend Dynamics, Learning, and Expected Stock Index Returns
Journal of Finance
Author(s)
We present a latent variable model of dividends that predicts, out-of-sample, 39.5%
to 41.3% of the variation in annual dividend growth rates between 1975 and 2016.
Further, when learning about dividend dynamics is incorporated into a long-run
risks model, the model predicts, out-of-sample, 25.3% to 27.1% of the variation in
annual stock index returns over the same time horizon, with learning contributing
approximately half of the predictability in returns. These findings support the view
that investors’ aversion to long-run risks and their learning about these risks are
important in determining stock index prices and expected returns.
Date Published:
2019
Citations:
Jagannathan, Ravi, Binying Liu. 2019. Dividend Dynamics, Learning, and Expected Stock Index Returns. Journal of Finance. (1)401-448.