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Variance matters (in stochastic dividend discount models)

Author

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  • Arianna Agosto
  • Enrico Moretto

Abstract

Stochastic dividend discount models (Hurley and Johnson, 1994 and 1998, Yao, 1997) present expressions for the expected value of stock prices when future dividends evolve according to some random scheme. In this paper we try to offer a more precise view on this issue proposing a closed-form formula for the variance of stock prices.

Suggested Citation

  • Arianna Agosto & Enrico Moretto, 2013. "Variance matters (in stochastic dividend discount models)," Papers 1311.0236, arXiv.org.
  • Handle: RePEc:arx:papers:1311.0236
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    File URL: http://arxiv.org/pdf/1311.0236
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    References listed on IDEAS

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    1. repec:hal:wpaper:halshs-00721339 is not listed on IDEAS
    2. Myron J. Gordon & Eli Shapiro, 1956. "Capital Equipment Analysis: The Required Rate of Profit," Management Science, INFORMS, vol. 3(1), pages 102-110, October.
    3. Dominique Guégan & Wayne Tarrant, 2012. "On the necessity of five risk measures," Annals of Finance, Springer, vol. 8(4), pages 533-552, November.
    4. Philippe Artzner & Freddy Delbaen & Jean-Marc Eber & David Heath, 1999. "Coherent Measures of Risk," Mathematical Finance, Wiley Blackwell, vol. 9(3), pages 203-228.
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    Cited by:

    1. Arianna Agosto & Alessandra Mainini & Enrico Moretto, 2016. "Covariance of random stock prices in the Stochastic Dividend Discount Model," Papers 1609.03029, arXiv.org, revised Apr 2017.
    2. repec:kap:annfin:v:13:y:2017:i:2:d:10.1007_s10436-017-0297-9 is not listed on IDEAS
    3. Guglielmo D'Amico, 2016. "Generalized semi-Markovian dividend discount model: risk and return," Papers 1605.02472, arXiv.org.
    4. repec:kap:annfin:v:13:y:2017:i:4:d:10.1007_s10436-017-0302-3 is not listed on IDEAS

    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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