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A note on the Gordon growth model with nonstationary dividend growth

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  • Henri Pagès

    (Fondation Banque de France pour la Recherche)

Abstract

Researchers have sometimes argued that the recent ascent in stock prices could be explained in some measure by changes in expectations about long-run future dividend growth. For example, Barsky and De Long (1993) argue that a small random walk component in the growth rate of dividends, when extrapolated into the future, is capable of reproducing the large swings in US stock prices over the period 1880-1990. I show that the hypothesis of a nonstationary permanent growth rate of dividends is inconsistent with the Gordon growth model.

Suggested Citation

  • Henri Pagès, 1999. "A note on the Gordon growth model with nonstationary dividend growth," BIS Working Papers 75, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:75
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    References listed on IDEAS

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    1. John B. Carlson & Kevin H. Sargent, 1997. "The recent ascent of stock prices: can it be explained by earnings growth or other fundamentals?," Economic Review, Federal Reserve Bank of Cleveland, issue Q II, pages 2-12.
    2. N. Gregory Mankiw & David Romer & Matthew D. Shapiro, 1991. "Stock Market Forecastability and Volatility: A Statistical Appraisal," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(3), pages 455-477.
    3. Robert B. Barsky & J. Bradford De Long, 1993. "Why Does the Stock Market Fluctuate?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(2), pages 291-311.
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    Cited by:

    1. Baresa, Suzana & Bogdan , Sinisa & Ivanovic, Zoran, 2013. "Strategy Of Stock Valuation By Fundamental Analysis," UTMS Journal of Economics, University of Tourism and Management, Skopje, Macedonia, vol. 4(1), pages 45-51.

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