A Stochastic Gordon-Shapiro Formula with Excess Volatility

Share prices fluctuate far more than dividends. In contemporary lit- erature, this excess volatility is usually discussed involving the Camp- bell-Shiller present value identity. our view, it appropriate to model future dividends and explicitly as random variables. We refer if coefficient of dispersion for share higher dividends. It often presumed that could be properly expli- cated by time-varying discount factors. However, we will show idea logically inconsistent long one uses deterministic dis- count This even holds assumes complex stochastic structures dividends, such AR(2) processes. We therefore propose factors free arbitrage, transversality condition met are unique. Finally, try consolidate approach with Lucas Model. Here, shown on hand in cost capital cannot stochastic. Moreover, equity premium puzzle can no longer replicated, but rather a realistic risk aversion obtained. Finally, change costs also possible.