A Note on the Gordon Growth Model with Nonstationary Dividend Growth

15 Pages Posted: 13 Dec 2005

Date Written: August 1999

Abstract

Researchers have sometimes argued that the recent ascent in stock prices could be explained in some measure by changes in expectations about long-run future dividend growth. For example, Barsky and De Long (1993) argue that a small random walk component in the growth rate of dividends, when extrapolated into the future, is capable of reproducing the large swings in US stock prices over the period 1880-1990. I show that the hypothesis of a nonstationary permanent growth rate of dividends is inconsistent with the Gordon growth model.

Suggested Citation

Pages, Henri F., A Note on the Gordon Growth Model with Nonstationary Dividend Growth (August 1999). BIS Working Paper No. 75, Available at SSRN: https://ssrn.com/abstract=856305 or http://dx.doi.org/10.2139/ssrn.856305

Henri F. Pages (Contact Author)

Banque de France ( email )

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