SiegelCh6

SiegelCh6 - Siegel Ch 6 Sources and Measures of Stock Market Value People used to believe that when the interest rate on long-term government bonds

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Siegel Ch. 6 Sources and Measures of Stock Market Value People used to believe that when the interest rate on long-term government bonds exceeded the dividend yield on common stock, a stock market decline would follow. When this inversion happened 1958, there was no such decline. Several reasons for this, including a rise in inflation which increased the yield on bonds. Yet from 1958 onwards, stock dividend yields have never exceeded those of bonds, yet during this period we have seen some of the largest returns of stock returns (relative to bond returns too). Valuation of Cash Flows from Stocks Dividends and earnings. Stock price is the discounted value of future cash flows (dividends). Reasons for discounting: -time preferences -productivity, funds invested today should yield higher returns -inflation -uncertainty Sources of Shareholder Value Payments of cash dividends, share repurchases, debt retirement, investment in securities, capital projects, or other firms. Does the value of stocks depend on dividends or earnings?
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This note was uploaded on 01/27/2010 for the course ECON 252 taught by Professor Robertshiller during the Spring '08 term at Yale.

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SiegelCh6 - Siegel Ch 6 Sources and Measures of Stock Market Value People used to believe that when the interest rate on long-term government bonds

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