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Variance matters (in stochastic dividend discount models)

Author

Listed:
  • 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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    Cited by:

    1. Guglielmo D'Amico, 2016. "Generalized semi-Markovian dividend discount model: risk and return," Papers 1605.02472, arXiv.org.
    2. Aziz Issaka & Indranil SenGupta, 2017. "Analysis of variance based instruments for Ornstein–Uhlenbeck type models: swap and price index," Annals of Finance, Springer, vol. 13(4), pages 401-434, November.
    3. Vlad Stefan Barbu & Guglielmo D’Amico & Riccardo Blasis, 2017. "Novel advancements in the Markov chain stock model: analysis and inference," Annals of Finance, Springer, vol. 13(2), pages 125-152, May.
    4. Guglielmo D'Amico & Riccardo De Blasis, 2020. "A review of the Dividend Discount Model: from deterministic to stochastic models," Papers 2001.00465, arXiv.org.
    5. D'Amico, Guglielmo & De Blasis, Riccardo, 2024. "Dividend based risk measures: A Markov chain approach," Applied Mathematics and Computation, Elsevier, vol. 471(C).
    6. Guglielmo D’Amico & Ada Lika & Filippo Petroni, 2019. "Change point dynamics for financial data: an indexed Markov chain approach," Annals of Finance, Springer, vol. 15(2), pages 247-266, June.
    7. Arianna Agosto & Alessandra Mainini & Enrico Moretto, 2019. "Stochastic dividend discount model: covariance of random stock prices," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 43(3), pages 552-568, July.
    8. 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.
    9. Battulga Gankhuu, 2022. "Augmented Dynamic Gordon Growth Model," Papers 2201.06012, arXiv.org, revised Sep 2024.

    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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