Abstract

http://ssrn.com/abstract=2083609
 


 



Do Stock Prices Move Too Much to Be Justified by Changes in Cash Flows? New Evidence from Parallel Asset Markets


Tobias Muhlhofer


University of Texas at Austin - Department of Finance

Andrey Ukhov


Cornell University

January 1, 2012

29th International Conference of the French Finance Association (AFFI) 2012

Abstract:     
We take advantage of two parallel markets for a set of cash flows to show that better cash flow measurement improves the performance of a dividend discount model. Unlike previous literature, we use out-of-sample estimation. We construct a natural laboratory, by using a unique dataset of commercial real estate and augmenting the dividend information for REITs with cash flow information from this parallel market. The results improve dramatically when information from direct property cash flows is added. These findings suggest that the performance of dividend pricing models improves greatly with better measurement of cash flows, and thus contribute to the resolution of the excess volatility puzzle.

Number of Pages in PDF File: 35

Keywords: Dividend Pricing Models, Excess Volatility, Cash Flows, Vector Autoregression, Real Estate Investment Trusts

JEL Classification: G12

working papers series


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Date posted: October 2, 2012  

Suggested Citation

Muhlhofer, Tobias and Ukhov, Andrey, Do Stock Prices Move Too Much to Be Justified by Changes in Cash Flows? New Evidence from Parallel Asset Markets (January 1, 2012). 29th International Conference of the French Finance Association (AFFI) 2012. Available at SSRN: http://ssrn.com/abstract=2083609 or http://dx.doi.org/10.2139/ssrn.2083609

Contact Information

Tobias Muhlhofer
University of Texas at Austin - Department of Finance ( email )
Red McCombs School of Business
Austin, TX 78712
United States
HOME PAGE: http://toby.muhlhofer.com
Andrey Ukhov (Contact Author)
Cornell University ( email )
Ithaca, NY 14853
United States
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