Abstract

https://ssrn.com/abstract=262076
 
 

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Do Stock Prices Move Too Much to Be Justified by Subsequent Changes in Dividends?


Robert J. Shiller


Yale University - Cowles Foundation; National Bureau of Economic Research (NBER); Yale University - International Center for Finance

February 1980

NBER Working Paper No. w0456

Abstract:     
This paper will develop the efficient markets model in Section I to clarify some theoretical questions that may arise in connection with the inequality (1) and some similar inequalities will be derived that put limits on the standard deviation of the innovation in price and the standard deviation of the change in price. The model is restated in innovation form which allows better understanding of the limits on stock price volatility imposed by the model. In particular, this will enable us to see (Section II) that the standard deviation of p is highest when information about dividends is revealed smoothly and that if information is revealed in big lumps occasionally the price series may have higher kurtosis (fatter tails) but will have lower variance. The notion expressed by some that earnings rather than dividend data should be used is discussed in Section III, and a way of assessing the importance of time variation in real discount rates is shown in Section IV. The inequalities are compared with the data in Section V.

Number of Pages in PDF File: 40


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Date posted: April 12, 2004  

Suggested Citation

Shiller, Robert J., Do Stock Prices Move Too Much to Be Justified by Subsequent Changes in Dividends? (February 1980). NBER Working Paper No. w0456. Available at SSRN: https://ssrn.com/abstract=262076

Contact Information

Robert J. Shiller (Contact Author)
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
203-432-3708 (Phone)
Yale University - International Center for Finance ( email )
Box 208200
New Haven, CT 06520
United States
203-432-3708 (Phone)
203-432-6167 (Fax)

Yale University - Cowles Foundation ( email )
Box 208281
New Haven, CT 06520-8281
United States
203-432-3708 (Phone)
203-432-6167 (Fax)
HOME PAGE: http://www.econ.yale.edu/~shiller/

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