Stock-Market Equilibrium and the Dividend Yield

Charles Kramer

No 1996/090, IMF Working Papers from International Monetary Fund

Abstract: Can fundamentals account for the recent performance of the U.S. stock market? The price/earnings ratio is out of line with historical averages, and the dividend/price ratio has recently reached a historic low. These developments and record levels of inflows into mutual funds have led some to conclude that stock prices are above their fundamental levels. This paper assesses the recent rise in the stock market using a model for the equilibrium dividend/price ratio. While economic variables can account for most of the recent fall in the dividend/price ratio, mutual-fund inflows still have some marginal explanatory power.

Keywords: WP; price ratio; default premium; inflation rate; mutual-fund inflow; dividend growth; steepening yield curve; log dividend yield; Stock markets; Asset prices; Treasury bills and bonds; Yield curve; Stocks (search for similar items in EconPapers)
Pages: 24
Date: 1996-08-01
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