Forecasting Equity Market Returns for Sweden, Denmark and Norway Using a Valuation Multiple

Kristoffer Sundhaugen Ødegård

Student thesis: Master thesis


The use of valuation multiples of fundamental value to forecast equity returns, have proven to
become a successful predictor the United States. Therefore, it is interesting to investigate whether this methodology is applicable to the Swedish, Danish and Norwegian equity market through the use of the dividend-price ratio.
To investigate this, the methodology developed by Robert J. Shiller and John Y. Campbell, with an extension building on the work of Thomas Philips and Cenk Ural, is applied. This results in the establishment of causality between the dividend-price ratio and future growth in equity prices and dividends for the Swedish, Danish and Norwegian market. In addition, the future equity returns are estimated to be are higher in Sweden and Denmark, as compared to Norway.
The model setup that is used to estimate future equity returns do impose some econometric difficulties through potential correlation between observations in the time series. This is dealt with through a simulation study, which indicate that the results are valid.
The final discussion that is highlighted, is whether dividends are a precise measure of fundamental value. In the United States, the level of dividend payouts among the largest companies have declined significantly. This is also a trend that is evident in Sweden and Denmark, and impose a possible downward bias on the equity return forecast. The best way to handle this, is to obtain data on total payout that includes dividends and share buybacks. This is not considered part of the scope of this research, but is left to be investigated in the future.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
Publication date2016
Number of pages59