Module VIII·Article I·~1 min read
Drivers of Stock Returns
Global Equities (Developed Markets)
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Sources of Return
Long-term stock return consists of three components:
Shiller Formula
Total Return = Dividend Yield + EPS Growth + P/E Expansion
| Component | Historical Contribution (US) |
|---|---|
| Dividend Yield | ~2% |
| Earnings Growth | ~5% |
| Valuation Change | ~0-2% |
| Total | ~7-9% |
P/E Ratio
Price / Earnings per share. High P/E = growth expectations or a bubble. Low P/E = undervaluation or problems.
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Global Equities (Developed Markets)
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