Critical Finance Review > Vol 10 > Issue 3

Stock Prices Still Move Too Much For Dividends But Less So: A Reappraisal of Shiller 1981

Dan Gabriel Anghel, Institute for Economic Forecasting, Romanian Academy, dan.anghel@fin.ase.ro , Petre Caraiani, Institute for Economic Forecasting, Romanian Academy, caraiani@ipe.ro
 
Suggested Citation
Dan Gabriel Anghel and Petre Caraiani (2021), "Stock Prices Still Move Too Much For Dividends But Less So: A Reappraisal of Shiller 1981", Critical Finance Review: Vol. 10: No. 3, pp 409-418. http://dx.doi.org/10.1561/104.00000094

Publication Date: 02 Aug 2021
© 2021 Petre Caraiani and Dan Gabriel Anghel
 
Subjects
 
Keywords
E5
Excess volatilityPresent value model
 

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In this article:
1. Introduction 
2. Notes on the Methodology 
3. Data Description 
4. Results 
5. Discussion of Results 
6. References 
References 

Abstract

In this paper, we revisit and extend the analysis in Shiller (1981) to an updated sample. The main puzzling result of the paper is that the fundamental present value model of stock prices predicts a volatility at odds with the data: the stock prices are much more volatile compared to what discounted future dividends would imply. Our paper closely replicates the results for the S&P 500 index. For an updated sample between 1963 and 2018, we find that the excess volatility puzzle is still strong, but it has diminished by a third relative to the sample period in Shiller (1981).

DOI:10.1561/104.00000094