The Predictive Power of the Dividend Risk Premium
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چکیده
We show that the dividend growth rate implied by the futures market is informative about (i) the expected dividend growth rate and (ii) the expected dividend risk premium. We model the dividend risk premium and explore its implications for the predictability of dividend growth and aggregate stock returns. We show that accounting for the dividend risk premium strengthens the predictability of dividend growth and aggregate returns both inand outof-sample. Economically, we find that a market timing investor who accounts for the time varying dividend risk premium realizes an additional utility gain
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