Stock-Market Equilibrium and the Dividend Yield
August 1, 1996
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Summary
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.
Subject: Asset prices, Financial institutions, Financial markets, Financial services, Prices, Stock markets, Stocks, Treasury bills and bonds, Yield curve
Keywords: Asset prices, default premium, dividend growth, inflation rate, log dividend yield, mutual-fund inflow, price ratio, steepening yield curve, Stock markets, Stocks, Treasury bills and bonds, WP, Yield curve
Pages:
24
Volume:
1996
DOI:
Issue:
090
Series:
Working Paper No. 1996/090
Stock No:
WPIEA0901996
ISBN:
9781451951981
ISSN:
1018-5941
