Dividend Innovations and Stock Price Volatility
A standard efficient markets model states that a stock price equals the expected present discounted valu e of its dividends, with a constant discount rate. This is shown to i mply that the variance of the innovation in the stock price is smalle r than that of a stock-price forecast made from a subset of the marke t's information set. The implication follows even if prices and divid ends require differencing to induce stationarity. The relation betwee n the variances appears not to hold for some annual U.S. stock-market data. The rejection of the model is both quantitatively and statisti cally significant. Copyright 1988 by The Econometric Society.
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Volume (Year): 56 (1988)
Issue (Month): 1 (January)
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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ackley, Gardner, 1983. "Commodities and Capital: Prices and Quantities," American Economic Review, American Economic Association, vol. 73(1), pages 1-16, March.
- Blanchard, Olivier J, 1983.
"The Production and Inventory Behavior of the American Automobile Industry,"
Journal of Political Economy,
University of Chicago Press, vol. 91(3), pages 365-400, June.
- Olivier J. Blanchard, 1982. "The Production and Inventory Behavior of the American Automobile Industry," NBER Working Papers 0891, National Bureau of Economic Research, Inc.
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