Stochastic dividend discount models (Hurley and Johnson in Financ Anal J 50–54. http://www.jstor.org/stable/4479761, 1994, J Portf Manag 27–31. doi:10.3905/jpm.1998.409658, 1998; Yao in J Portf Manag 99–103. doi:10.3905/jpm.1997.409618, 1997) present expressions for the expected value of stock prices when future dividends, periodically received by shareholders as a reward for their risky investment, evolve through time in a Markovian setting by the means of a discretely distributed random rate of growth. Such result extends and makes more flexible the classical textbook formula for stock prices known as Gordon model. This paper introduces a closed-form expression for the variance of random stock prices, determines how their variance is affected by the variance of the dividend rate of growth, establishes that, in this framework, the dividend process is non-stationary, and perform a simple econometric analysis applying real market data.

Variance matters (in stochastic dividend discount models)

MORETTO, ENRICO
2015-01-01

Abstract

Stochastic dividend discount models (Hurley and Johnson in Financ Anal J 50–54. http://www.jstor.org/stable/4479761, 1994, J Portf Manag 27–31. doi:10.3905/jpm.1998.409658, 1998; Yao in J Portf Manag 99–103. doi:10.3905/jpm.1997.409618, 1997) present expressions for the expected value of stock prices when future dividends, periodically received by shareholders as a reward for their risky investment, evolve through time in a Markovian setting by the means of a discretely distributed random rate of growth. Such result extends and makes more flexible the classical textbook formula for stock prices known as Gordon model. This paper introduces a closed-form expression for the variance of random stock prices, determines how their variance is affected by the variance of the dividend rate of growth, establishes that, in this framework, the dividend process is non-stationary, and perform a simple econometric analysis applying real market data.
2015
http://link.springer.com/article/10.1007/s10436-014-0257-6
Equity valuation; Stochastic dividend discount models; Non-stationarity of stochastic dividend processes
Agosto, Arianna; Moretto, Enrico
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11383/1971120
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