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The Dividend Discount Model with Multiple Growth Rates of Any Order for Stock Evaluation

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  • Abdulnasser Hatemi-J
  • Youssef El-Khatib

Abstract

In this paper we provide a general solution for the dividend discount model in order to compute the intrinsic value of a common stock that allows for multiple stage growth rates of any predetermined number of periods. A mathematical proof is provided for the suggested general solution. A numerical application is also presented. The solution introduced in this paper is expected to improve on the precision of stock valuation, which might be of fundamental importance for investors as well as financial institutions.

Suggested Citation

  • Abdulnasser Hatemi-J & Youssef El-Khatib, 2018. "The Dividend Discount Model with Multiple Growth Rates of Any Order for Stock Evaluation," Papers 1802.08987, arXiv.org.
    • Handle: RePEc:arx:papers:1802.08987
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    File URL: http://arxiv.org/pdf/1802.08987
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    References listed on IDEAS

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    1. Gordon, Myron J & Gould, L I, 1978. "The Cost of Equity Capital: A Reconsideration," Journal of Finance, American Finance Association, vol. 33(3), pages 849-861, June.
    2. Stephen A. Ross, 2013. "The Arbitrage Theory of Capital Asset Pricing," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 1, pages 11-30, World Scientific Publishing Co. Pte. Ltd..
    3. Darmawan, Indra & Siregar, Hermanto & Hakim, Dedi B. & Manurung, Adler H., 2021. "Crude Oil Price Movement and Stock Market Trading Activity: Evidence from Indonesia," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 74(1), pages 25-46.
    4. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, September.
    5. Hatemi-J, Abdulnasser, 2019. "The Causal Impact of Stock Market Development on Economic Development in the UAE: An Asymmetric Approach," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 72(2), pages 171-184.
    6. Hatemi-J, Abdulnasser & Taha, Viyan, 2021. "Portfolio Diversification Benefits between Financial Markets of the US and China: Empirical Evidence from two Alternative Methods," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 74(4), pages 537-546.
    7. Myron J. Gordon & Eli Shapiro, 1956. "Capital Equipment Analysis: The Required Rate of Profit," Management Science, INFORMS, vol. 3(1), pages 102-110, October.
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    Cited by:

    1. Abdulnasser Hatemi-J, 2024. "An Asymmetric Capital Asset Pricing Model," Papers 2404.14137, arXiv.org, revised May 2024.

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    More about this item

    JEL classification:

    • C00 - Mathematical and Quantitative Methods - - General - - - General
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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