Are stock prices too volatile to be justified by the dividend discount model?

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dc.citation.epage444en_US
dc.citation.spage433en_US
dc.citation.volumeNumber376en_US
dc.contributor.authorAkdeniz, L.en_US
dc.contributor.authorSalih, A. A.en_US
dc.contributor.authorOk, S. T.en_US
dc.date.accessioned2016-02-08T10:15:06Z
dc.date.available2016-02-08T10:15:06Z
dc.date.issued2007en_US
dc.departmentDepartment of Managementen_US
dc.description.abstractThis study investigates excess stock price volatility using the variance bound framework of LeRoy and Porter [The present-value relation: tests based on implied variance bounds, Econometrica 49 (1981) 555-574] and of Shiller [Do stock prices move too much to be justified by subsequent changes in dividends? Am. Econ. Rev. 71 (1981) 421-436.]. The conditional variance bound relationship is examined using cross-sectional data simulated from the general equilibrium asset pricing model of Brock [Asset prices in a production economy, in: J.J. McCall (Ed.), The Economics of Information and Uncertainty, University of Chicago Press, Chicago (for N.B.E.R.), 1982]. Results show that the conditional variance bounds hold, hence, our hypothesis of the validity of the dividend discount model cannot be rejected. Moreover, in our setting, markets are efficient and stock prices are neither affected by herd psychology nor by the outcome of noise trading by naive investors; thus, we are able to control for market efficiency. Consequently, we show that one cannot infer any conclusions about market efficiency from the unconditional variance bounds tests.en_US
dc.description.provenanceMade available in DSpace on 2016-02-08T10:15:06Z (GMT). No. of bitstreams: 1 bilkent-research-paper.pdf: 70227 bytes, checksum: 26e812c6f5156f83f0e77b261a471b5a (MD5) Previous issue date: 2007en
dc.identifier.doi10.1016/j.physa.2006.10.097en_US
dc.identifier.eissn1873-2119
dc.identifier.issn0378-4371
dc.identifier.urihttp://hdl.handle.net/11693/23516
dc.language.isoEnglishen_US
dc.publisherElsevieren_US
dc.relation.isversionofhttp://dx.doi.org/10.1016/j.physa.2006.10.097en_US
dc.source.titlePhysica A: Statistical Mechanics and its Applicationsen_US
dc.subjectAsset pricingen_US
dc.subjectDividend discount modelen_US
dc.subjectExcess volatilityen_US
dc.subjectMarket efficiencyen_US
dc.subjectVariance boundsen_US
dc.subjectComputational complexityen_US
dc.subjectComputer simulationen_US
dc.subjectData reductionen_US
dc.subjectMarketingen_US
dc.subjectMathematical modelsen_US
dc.subjectStatistical methodsen_US
dc.subjectEconomicsen_US
dc.titleAre stock prices too volatile to be justified by the dividend discount model?en_US
dc.typeArticleen_US

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