Fluctuations in the UK Equity Marketjavascript:void(0); What drives stock returns?

Research output: Contribution to journalArticle

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Abstract

Present value parameters from a state-space model are estimated for the UK FT All-Share Index. The estimated parameters are used to construct a time series of expected future returns and expected future values of dividend growth, both of which are found to be time-varying with persistent components. Variations in the price-dividend ratio appear to be driven primarily by the variance in expected returns. A comparison with the findings from a present value-constrained vector autoregression (VAR) model indicates that the latter forecasts future realized returns and dividend growth better than the series constructed using a state-space approach. Furthermore, when the model is estimated for monthly and quarterly data, expected dividend growth is found to be more persistent.
Original languageEnglish
Pages (from-to)499-516
Number of pages17
JournalEuropean Journal of Finance
Volume24
Issue number6
Early online date8 Jun 2017
DOIs
Publication statusPublished - 8 Jun 2017

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Fluctuations
Dividends
Equity
Stock returns
Present value
Expected returns
Vector autoregression model
Time-varying
State space
State-space model

Keywords

  • State-Space model
  • UK Equity Market
  • Present value

Cite this

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title = "Fluctuations in the UK Equity Marketjavascript:void(0);: What drives stock returns?",
abstract = "Present value parameters from a state-space model are estimated for the UK FT All-Share Index. The estimated parameters are used to construct a time series of expected future returns and expected future values of dividend growth, both of which are found to be time-varying with persistent components. Variations in the price-dividend ratio appear to be driven primarily by the variance in expected returns. A comparison with the findings from a present value-constrained vector autoregression (VAR) model indicates that the latter forecasts future realized returns and dividend growth better than the series constructed using a state-space approach. Furthermore, when the model is estimated for monthly and quarterly data, expected dividend growth is found to be more persistent.",
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Fluctuations in the UK Equity Marketjavascript:void(0); What drives stock returns? / Rambaccussing, Dooruj; Power, David.

In: European Journal of Finance, Vol. 24, No. 6, 08.06.2017, p. 499-516.

Research output: Contribution to journalArticle

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