Expected returns and expected dividend growth

Martin Lettau, Sydney Ludvigson

    Research output: Contribution to journalArticle

    Abstract

    We investigate a consumption-based present-value relation that is a function of future dividend growth and find that changing forecasts of dividend growth are an important feature of the post-war U.S. stock market, despite the failure of the dividend-price ratio to uncover such variation. In addition, dividend forecasts are found to covary with changing forecasts of excess stock returns over business cycle frequencies. This covariation is important because positively correlated fluctuations in expected dividend growth and expected returns have offsetting effects on the log dividend-price ratio. The market risk premium and expected dividend growth thus vary considerably more than is apparent using the log divided-price ratio alone as a predictive variable.

    Original languageEnglish (US)
    Pages (from-to)583-626
    Number of pages44
    JournalJournal of Financial Economics
    Volume76
    Issue number3
    DOIs
    StatePublished - Jun 2005

    Fingerprint

    Expected returns
    Dividends
    Market risk premium
    Stock returns
    Stock market
    Business cycles
    Present value
    Fluctuations

    Keywords

    • Cash-flow predictability
    • Dividend growth
    • Return predictability
    • Risk premia

    ASJC Scopus subject areas

    • Accounting
    • Finance
    • Economics and Econometrics
    • Strategy and Management

    Cite this

    Expected returns and expected dividend growth. / Lettau, Martin; Ludvigson, Sydney.

    In: Journal of Financial Economics, Vol. 76, No. 3, 06.2005, p. 583-626.

    Research output: Contribution to journalArticle

    Lettau, Martin ; Ludvigson, Sydney. / Expected returns and expected dividend growth. In: Journal of Financial Economics. 2005 ; Vol. 76, No. 3. pp. 583-626.
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