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Market Pricing of Fundamentals at the Shanghai Stock Exchange: Evidence from a Dividend Discount Model with Adaptive Expectations

Id：2582 Date：20201230 Status： ClickTimes：
作者Mingyang Li, Linlin Niu, Andrew Pua
正文We study market pricing of fundamentals at the Shanghai Stock Exchange, incorporating possible irrational pricing behavior with adaptive expectation. Using panel data of listed stocks to overcome the limited information in aggregate time series data, we estimated key parameters of the price elasticity of dividends and the expectation adjustment based on a linear dynamic panel data model. We use a major subset of stocks with stationary real prices and cash flows and apply methods that correct for incidental parameter bias. The resulting price elasticity of dividends is about 0.46 (0.35) based on annual (quarterly) data, which is sizable given high PD (PE) ratios in the market. Our results imply that slow expectation adjustment contributes to “bubble-like” price patterns. We also show prices significantly react to macro information related to the discount rate, but these effects are very sensitive to the information set used.
JEL-Codes：G12, C33, C58
关键词：Stock price determination, Adaptive expectation, Time-varying discount rate, Incidental parameter bias
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