Stock Prices, Earnings, and Expected Dividends

John Campbell, Robert Shiller

Research

42 Pages

The authors examine whether stock prices reflect the discounted value of future dividends using US market data from 1871 through 1986. Their evidence suggests earnings provide substantial forecasting information beyond prices, connecting excess market volatility with the predictability of returns over longer horizons.

Key Takeaways

Earnings Carry Weight: Optimal dividend forecasts place roughly 67% to 75% of their weight on moving average earnings.
Returns Appear Excessive: Annual stock returns are 2 to 4 times as variable as their theoretical counterparts.
Long Sample Studied: The analysis covers 116 years of aggregate US stock market data from 1871 through 1986.
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