Predictive Regressions: A Present-Value Approach

48 Pages Posted: 4 Mar 2007 Last revised: 15 Sep 2013

Jules H. van Binsbergen

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

Ralph S. J. Koijen

New York University (NYU) - Department of Finance; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: January 12, 2009

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 whole history of the price-dividend ratio and dividend growth rates to obtain predictors for future returns and dividend growth rates. We find that both returns and dividend growth rates are predictable with R-squared values ranging from 8.2-8.9 percent for returns and 13.9-31.6 percent 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.

Keywords: predictive regressions, present-value models

JEL Classification: G12, C32

Suggested Citation

van Binsbergen, Jules H. and Koijen, Ralph S. J., Predictive Regressions: A Present-Value Approach (January 12, 2009). Available at SSRN: https://ssrn.com/abstract=968053 or http://dx.doi.org/10.2139/ssrn.968053

Jules H. Van Binsbergen

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://www.nber.org/people/jules_vanbinsbergen

Ralph S. J. Koijen (Contact Author)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

HOME PAGE: http://www.koijen.net

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

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