Analytical cyclical price–dividend ratios

Fausto Mignanego; Alessandro Sbuelz

doi:10.1016/j.econlet.2022.110510

Analytical cyclical price–dividend ratios

Fausto Mignanego, Alessandro Sbuelz^*

^*Corresponding author

Research output: Contribution to journal › Article › peer-review

Abstract

How non-linear are exact log price–dividend ratios in the fundamental state variables? We work out in continuous time a novel exact formula for the log price–dividend ratio to study how much non-linearity is generated by the persistence of an exogenous mean-reverting and homoskedastic state variable. Our pricing formula highlights that persistence fosters endogenous conditional heteroskedasticity of the stock returns by fueling the non-linearity of the log price–dividend ratio.

Original language	English
Pages (from-to)	1-6
Number of pages	6
Journal	Economics Letters
Volume	215
DOIs	https://doi.org/10.1016/j.econlet.2022.110510
Publication status	Published - 2022

Keywords

Endogenous heteroskedasticity
Log-linear approximation
Long-run risk
Non-linearity
Price–dividend ratio

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10.1016/j.econlet.2022.110510

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title = "Analytical cyclical price–dividend ratios",

abstract = "How non-linear are exact log price–dividend ratios in the fundamental state variables? We work out in continuous time a novel exact formula for the log price–dividend ratio to study how much non-linearity is generated by the persistence of an exogenous mean-reverting and homoskedastic state variable. Our pricing formula highlights that persistence fosters endogenous conditional heteroskedasticity of the stock returns by fueling the non-linearity of the log price–dividend ratio.",

keywords = "Endogenous heteroskedasticity, Log-linear approximation, Long-run risk, Non-linearity, Price–dividend ratio, Endogenous heteroskedasticity, Log-linear approximation, Long-run risk, Non-linearity, Price–dividend ratio",

author = "Fausto Mignanego and Alessandro Sbuelz",

year = "2022",

doi = "10.1016/j.econlet.2022.110510",

language = "English",

volume = "215",

pages = "1--6",

journal = "Economics Letters",

issn = "0165-1765",

publisher = "Elsevier B.V.",

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T1 - Analytical cyclical price–dividend ratios

AU - Mignanego, Fausto

AU - Sbuelz, Alessandro

PY - 2022

Y1 - 2022

N2 - How non-linear are exact log price–dividend ratios in the fundamental state variables? We work out in continuous time a novel exact formula for the log price–dividend ratio to study how much non-linearity is generated by the persistence of an exogenous mean-reverting and homoskedastic state variable. Our pricing formula highlights that persistence fosters endogenous conditional heteroskedasticity of the stock returns by fueling the non-linearity of the log price–dividend ratio.

AB - How non-linear are exact log price–dividend ratios in the fundamental state variables? We work out in continuous time a novel exact formula for the log price–dividend ratio to study how much non-linearity is generated by the persistence of an exogenous mean-reverting and homoskedastic state variable. Our pricing formula highlights that persistence fosters endogenous conditional heteroskedasticity of the stock returns by fueling the non-linearity of the log price–dividend ratio.

KW - Endogenous heteroskedasticity

KW - Log-linear approximation

KW - Long-run risk

KW - Non-linearity

KW - Price–dividend ratio

KW - Endogenous heteroskedasticity

KW - Log-linear approximation

KW - Long-run risk

KW - Non-linearity

KW - Price–dividend ratio

UR - http://hdl.handle.net/10807/202773

U2 - 10.1016/j.econlet.2022.110510

DO - 10.1016/j.econlet.2022.110510

M3 - Article

SN - 0165-1765

VL - 215

SP - 1

EP - 6

JO - Economics Letters

JF - Economics Letters

ER -

Analytical cyclical price–dividend ratios

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Keywords

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