Intrinsic bubbles: the case of stock prices: a comment
Abstract: Some recent empirical evidence suggests that stock prices are not properly modelled as the present discounted value of expected dividends and that empirical models incorporating nonlinear bubble components better fit the data. In this paper we show that the nonlinearity in the relationship between prices and dividends may arise from how managers choose dividend payout. In particular, we propose a model of managed dividends which can explain observed long-term trends in stock prices. This model of managed dividends is shown to be observationally equivalent to the popular intrinsic bubbles model.
Keywords: Stock - Prices;
Status: Published in American Economic Review, December 1999, v. 89 no. 5, pp. 1372-1376
Provider: Federal Reserve Bank of Chicago
Part of Series: Working Paper Series
Publication Date: 1999