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Research Details
Dividend Dynamics, Learning, and Expected Stock Index Returns, Journal of Finance
Abstract
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.
Type
Article
Author(s)
Ravi Jagannathan, Binying Liu
Date Published
2019
Citations
Jagannathan, Ravi, and Binying Liu. 2019. Dividend Dynamics, Learning, and Expected Stock Index Returns. Journal of Finance. 74(1): 401-448.