Estimating Stock Returns

Abstract

How do we quantify the level of return that an investor can expect in the future? An examination of the historical distribution of total returns reveals declines in dividend yields and new likely lower boundaries for price appreciation. It is often asserted that low dividend yields brought about by higher earnings retention should be followed by greater price appreciation as a firm invests retained earnings into new projects. The available recent evidence refutes this assertion. Barring some significant reversal of current conditions, short-term and possibly intermediate-term returns from stocks will be lower than what many investors may be anticipating.