The After-Tax Divident-Ratio Model: Predictable Returns and Excess Returns in the Stock Market

An after-tax version of the fundamental value model is used to test for forecastability of one-period and multi-period after-tax stock returns and excess returns against a large information set consisting of macroeconomic and financial variables for the sample period 1871-1988. The results show that (1) all the information variables can predict multi-period returns and excess returns and (2) thirty-year moving averages of the information variables help forecastability seems to be due not so much to financial markets ignoring contemporaneous information but to their ignoring mean reversion in fundamentals. 

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