Stock-Market Equilibrium and the Dividend Yield

Author/Editor:

Charles Frederick Kramer

Publication Date:

August 1, 1996

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

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.

Series:

Working Paper No. 1996/090

Subject:

Asset prices Financial institutions Financial markets Financial services Prices Stock markets Stocks Treasury bills and bonds Yield curve

English

Publication Date:

August 1, 1996

ISBN/ISSN:

9781451951981/1018-5941

Stock No:

WPIEA0901996

Pages:

24

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