Year: 1990
Type: article
Abstract: This paper shows that unexpected stock returns must be associated with changes in expected future dividends or expected future returns A vector autoregressive method is used to break unexpected stock returns into these two components.In U.S. monthly data in 1927-88, one-third of the variance of unexpected returns is attributed to the variance of changing expected dividends, one-third to the variance of changing expected returns, and one-third to the covariance of the two components.Changing expected returns have a large effect on stock prices because they are persistent: a 1% innovation in the expected return is associated with a 4 or 5% capital loss.Changes in expected returns are negatively correlated with changes in expected dividends, increasing the stock market reaction to dividend news.In the period 1952-88, changing expected.returns account for a larger fraction of stock return variation than they do in the period 1927-51.
Source: The Economic Journal
DOI: 10.2307/2233809
Author: John Y. Campbell
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2140584608