Such short-horizon forecasting power should not be surprising; dividends
are fairly predictable over a few quarters, and the January stock price is
measured well after most of last year’s dividends have been paid, at a time
when it may be relatively easy for market participants to anticipate the level
of dividends during the coming year.
The lower part of figure 5.2 shows that the dividend/price ratio has little
forecasting power for stock price changes over the next year. Prices do have
178 CAMPBELL AND SHILLER
Figure 5.2. 1-year Dividend Growth vs. D/P. 1-year Price Growth vs. D/P.