The vector-autoregressive framework with explosive processes developed by Nielsen [2005. Working Paper. Nuffield College, Oxford University] is used to analyze US stock prices and dividends. In contrast to earlier studies, this framework makes it possible to model explosive behavior in stock prices while at the same time allowing stock prices and dividends to have a common I(1) trend. Over the period 1871–2000, US stock prices are found to contain both an explosive root and a unit root, and the unit root is shared with the unit root in dividends. These results are consistent with a simple present value model with explosive bubbles.