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

Robert Shiller

Research

40 Pages

This paper examines whether stock prices fluctuate more than changes in future dividends can reasonably justify. Robert Shiller finds actual prices substantially more volatile than rational valuation benchmarks, challenging a basic implication of efficient markets and suggesting expectations may amplify market movements beyond realized fundamentals.

Key Takeaways

Prices Move More: Using S&P data from 1871 to 1979, actual stock prices fluctuate far more dramatically than the present value of subsequent dividends.
Crash Challenges Fundamentals: The 1929 to 1932 market collapse cannot be rationalized by subsequent dividends, which fell below trend mainly during just 4 Depression years.
Efficiency Requires More: econciling prices with efficient markets requires expected real dividends to deviate from their long run trend much more than the 109 year historical record shows.
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