Stock prices, dividends and retention: long-run relationships and short-run dynamics

MacDonald, R. and Power, D. (1995) Stock prices, dividends and retention: long-run relationships and short-run dynamics. Journal of Empirical Finance, 2(2), pp. 135-151. (doi:10.1016/0927-5398(94)00014-8)

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Abstract

In this paper we present a modified version of the present value stock price model in which stock prices are explained by dividends and a retention term. It is argued that the retention term may have important information for stock prices over-and-above that contained in dividends. The model is tested using a well-known US data base and recently developed time series techniques. We demonstrate, inter alia, that a unique cointegrating relationship exists amongst stock prices, dividends and the retention term, and we establish a dynamic error correction model which has a number of appealing features.

Item Type:Articles
Status:Published
Refereed:Yes
Glasgow Author(s) Enlighten ID:MacDonald, Professor Ronald
Authors: MacDonald, R., and Power, D.
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:Journal of Empirical Finance
Publisher:Elsevier
ISSN:0927-5398

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