Economics, Econometrics and Finance
4 years ago

Stock prices may not reflect future dividends accurately, causing market instability.

Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?
Robert J. Shiller

Paper Summary

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Stock prices may move more than justified by changes in dividends. A study found that actual stock prices fluctuate more than what would be expected based on subsequent changes in dividends. This suggests that market expectations of future dividends may differ significantly from historical trends. The efficient markets model, which assumes prices reflect all available information, may not fully explain this discrepancy. To reconcile the data, it is necessary to consider that market expectations of dividends can deviate significantly from their long-term trends.