Dividends, prices and the present value model: firm-level evidence


Goddard J, McMillan D & Wilson JOS (2008) Dividends, prices and the present value model: firm-level evidence. European Journal of Finance, 14 (3), pp. 195-210.

Recent stock price movements have led to a re-examination of the present value model. Typically, empirical studies have employed a long span of US stock market index data, and have attributed a failure to detect cointegration to the presence of bubbles. This study considers UK firm-level data, and implements panel unit root and cointegration tests. Recent panel tests that allow for cross-sectional dependence control for factors such as bubbles that may result in temporary deviations from the long-run price-dividend relationship. The panel test results largely support the present value model, yielding evidence of cointegration between real prices and dividends.

Firm-level data; Present value model; Stock prices

European Journal of Finance: Volume 14, Issue 3

Publication date31/12/2008
PublisherTaylor & Francis (Routledge)