The debate over whether the expected present value of dividends adequately describes stock prices hinges in part on whether dividends are trend-stationary or integrated processes: it does not if dividends are trend-stationary; it does if they are integrated. This paper argues that classical statistical tests only indicate that there is not sufficient evidence to reject either specification and provides Bayesian analyses designed to reveal the relative support the data give to the two specifications. The analysis suggests that dividends and prices are more likely to be trend-stationary than integrated, leaving the determination of prices a puzzle.

The debate over whether the expected present value of dividends adequately describes stock prices hinges in part on whether dividends are trend-stationary or integrated processes: it does not if dividends are trend-stationary; it does if they are integrated. This paper argues that classical statistical tests only indicate that there is not sufficient evidence to reject either specification and provides Bayesian analyses designed to reveal the relative support the data give to the two specifications. The analysis suggests that dividends and prices are more likely to be trend-stationary than integrated, leaving the determination of prices a puzzle.

The paper investigates the common dynamic properties of business-cycle fluctuations across countries, regions, and the world. We employ a Bayesian dynamic latent factor model to estimate common components in macroeconomic aggregates (output, consumption, and investment) in a 60-country sample covering seven regions of the world. The results indicate that a common world factor is an important source of volatility for aggregates in most countries, providing evidence for a world business cycle. We find that region-specific factors play only a minor role in explaining fluctuations in economic activity. We also document similarities and differences across regions, countries, and aggregates.