Stock returns, expected returns, and real activity

Article Abstract:

Measuring the total return variation explained by shocks to expected cash flows, time-varying expected returns, and shocks to expected returns is one way to judge the rationality of stock prices. Variables that proxy for expected returns and expected-return shocks capture 30% of the variance of annual NYSE value-weighted returns. Growth rates of production, used to proxy for shocks to expected cash flows, explain 43% of return variance. Whether the combines explanatory power of the variables - about 58% of the variance of annual returns - is good or bad news about market efficiency is left for the reader to judge. (Reprinted by permission of the publisher.)

Prices and rates, Stocks, Stock prices, Stock price forecasting, Financial research

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Taxes, financing decisions, and firm value

Article Abstract:

We use cross-sectional regressions to study how a firm's value is related to dividends and debt. With a good control for profitability, the regressions can measure how the taxation of dividends and debt affects firm value. Simple tax hypotheses say that value is negatively related to dividends and positively related to debt. We find the opposite. We infer that dividends and debt convey information about profitability (expected net cash flows) missed by a wide range of control variables. This information about profitability obscures any tax effects of financing decisions. (Reprinted by permission of the publisher.)

Taxation, Dividends, Business enterprises, Debt financing (Corporations), Debt financing, Value (Economics)

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Characteristics, covariances, and average returns: 1929 to 1997

Article Abstract:

Analysis shows the rate of return on US stocks was robust for most of the 20th century. The three-risk factor risk model presented in this article explains value premium more completely than the hypothesis that book-to-market characteristic is always compensated.

United States, Business, History, Stock-exchange, Stock exchanges, Return on investment, Rate of return

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