Do Stock Prices Move Too Much to be Justified by Subsequent Changes in Dividends?

Robert J. Shiller

NBER Working Paper No. 456 (Also Reprint No. r0188)
Issued in February 1980
NBER Program(s):Monetary Economics

This paper will develop the efficient markets model in Section I to clarify some theoretical questions that may arise in connection with the inequality (1) and some similar inequalities will be derived that put limits on the standard deviation of the innovation in price and the standard deviation of the change in price. The model is restated in innovation form which allows better understanding of the limits on stock price volatility imposed by the model. In particular, this will enable us to see (Section II) that the standard deviation of p is highest when information about dividends is revealed smoothly and that if information is revealed in big lumps occasionally the price series may have higher kurtosis (fatter tails) but will have lower variance. The notion expressed by some that earnings rather than dividend data should be used is discussed in Section III, and a way of assessing the importance of time variation in real discount rates is shown in Section IV. The inequalities are compared with the data in Section V.

download in pdf format
   (441 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w0456

Published: Shiller, Robert J. "Do Stock Prices Move Too Much to Be Justified by Subsequent Changes in Dividends? The American Economic Review, Vol. 71, No. 3, (June 1981), PP. 421-436. citation courtesy of

Users who downloaded this paper also downloaded* these:
Campbell and Shiller w1885 Cointegration and Tests of Present Value Models
Campbell and Shiller w2511 Stock Prices, Earnings and Expected Dividends
Campbell and Shiller w8221 Valuation Ratios and the Long-Run Stock Market Outlook: An Update
Campbell w3246 A Variance Decomposition for Stock Returns
Grossman and Shiller w0564 The Determinants of the Variability of Stock Market Prices
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us