Intrinsic bubbles: the case of stock prices: a comment

Lucy Ackert and William C. Hunter

No WP-99-26, Working Paper Series from Federal Reserve Bank of Chicago

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 (search for similar items in EconPapers)
Date: 1999
New Economics Papers: this item is included in nep-fin
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Citations: View citations in EconPapers (21)

Published in American Economic Review, December 1999, v. 89 no. 5, pp. 1372-1376

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Journal Article: Intrinsic Bubbles: The Case of Stock Prices: Comment (1999)
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