Exact Linear Present Value

In this study, we propose an exact, level-based counterpart to the widely used loglinear present value framework. This level-based framework preserves the core economic content of the loglinear approach while eliminating the need for approximation. The framework, however, goes beyond exactness. It also allows a richer analysis of price dynamics. Price changes are separated into anticipated movements and expectation revisions, and each component is further decomposed into cash-flow and discount-rate contributions. We apply the framework empirically to characterize aggregate stock price movements.