Examination of Stock Market “Temperature” Using Price-Dividend Dependence for European Shares
Examination of Stock Market “Temperature” Using Price-Dividend Dependence for European Shares

Author(s): Sergey Petrov, Oksana Kashina, Roman Murashkin
Subject(s): Supranational / Global Economy, Methodology and research technology, Financial Markets
Published by: Masarykova univerzita nakladatelství
Keywords: heterogeneous expectations of investors; overvalued and undervalued shares; dividend discount model for common stock pricing; price-dividend dependence analysis; overheated stock market;
Summary/Abstract: The paper aims to investigate some European stock markets (whether they are overheated or undervalued) on the basis of price-dividend dependence analysis for a number of liquid shares. Our approach applies the procedure of revealing of shareholders’ expectations through econometric analysis of share price movement compared to changes in the dividend payments. As a result one may comprehend whether speculative motive of shareholders is responsible for market evaluating of the share or, on the contrary, shareholders are predominantly attracted by dividend payments on it. In such a way analysis of changes in price-dividend dependence for representative group of assets makes it possible to monitor when stock market overheats and generates a bubble. Moreover, the model developed permits to investigate how the company's industry is related to predominant motive of the representative shareholder when investors’ expectations are substantially heterogeneous.

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