State-space model and present value model: An application to the Korean stock market

Kwang Hun Choi, Cheolbeom Park

Research output: Contribution to journalArticle

Abstract

We have applied the state-space model to the Korean stock market under restrictions imposed by the present-value relation. Our main findings are (i) expected stock returns vary over time and have persistent and predictable component, (ii) expected dividend growth rates do not contain persistent and predictable component, (iii) expected stock returns play relatively more important role in explaining variations in the price-dividend ratio, (iv) shocks to expected stock returns are also more crucial in understanding unexpected stock return shocks, and (v) the state-space model does not appear to perform better than the predictive regression in terms of the ability in forecasting stock returns or dividend growth rates.

Original languageEnglish
Pages (from-to)1-15
Number of pages15
JournalJournal of Economic Theory and Econometrics
Volume24
Issue number1
Publication statusPublished - 2013 Mar 1

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Keywords

  • Expected dividend growth rates
  • Expected stock returns
  • Present-value model
  • Pricedividend ratio
  • State-space model

ASJC Scopus subject areas

  • Economics and Econometrics

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