English, Article, Journal or magazine article edition: A Variance Decomposition for Stock Returns John Y. Campbell

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Bookmark: http://trove.nla.gov.au/version/141276
Physical Description
  • preprint
Language
  • English

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Title
  • A Variance Decomposition for Stock Returns
Author
  • John Y. Campbell
Physical Description
  • preprint
Notes
  • 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.
  • RePEc:nbr:nberwo:3246
Language
  • English
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