The Power Law and Dividend Yields

Lueders, Erik; Lueders-Amann, Inge; Schröder, Michael

doi:10.2139/ssrn.570541

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The Power Law and Dividend Yields

ZEW - Centre for European Economic Research Discussion Paper No. 04-051

17 Pages Posted: 1 Aug 2004 Last revised: 14 Aug 2008

See all articles by Erik Lueders

Erik Lueders

Laval University; Centre interuniversitaire sur le risque, les politiques économiques et l'emploi (CIRPÉE)

Michael Schröder

affiliation not provided to SSRN

Date Written: 2004

Abstract

Recent research suggests that the power law is one of the most universal laws in nature and it also seems to work quite fine in economics and finance. In this paper we show that the power law explains extremely well the relationship between the value of broad-based market indices and their dividends. We also show that this relationship is consistent with declining relative risk aversion of the representative investor. Hence, the power law has a solid economic foundation.

Keywords: Power law, stock prices, dividends, co-integration

JEL Classification: G12, G15, E44

Suggested Citation: Suggested Citation

Lueders, Erik and Lueders-Amann, Inge and Schröder, Michael, The Power Law and Dividend Yields (2004). ZEW - Centre for European Economic Research Discussion Paper No. 04-051, Available at SSRN: https://ssrn.com/abstract=570541 or http://dx.doi.org/10.2139/ssrn.570541