Download pdf
An Evaluation of the Dividend Discount Model and its Extensions
- 1 Hainan Middle school, Haikou. 570100, Hainan, China
- 2 Beijing Royal School, Beijing, 100000 Beijing, China
- 3 Admiral Farragut Academy Tianjin, Tianjin. 300041 Tianjin, China
* Author to whom correspondence should be addressed.
Abstract
The valuation of the stock is one of the most fundamental financial concepts, whereas the Dividend Discount Model is the basis of the stock valuation. The model state that the value of the stock is the sum of the present value of the infinite future dividend. It is, however, impossible for Humans to forecast future dividend accurately. Therefore, the assumption of the future dividend and the extension of the dividend discount model are required. In this paper, the assumption, advantages, and limitations of the general Dividend discount model and its extension, including the Fix dividend discount model, Gordon growth model, Two-stage model, Three-phase model, H-model, Geometric and additive model, and the modified Geometric and additive model, are introduced in this paper, which can be used as a reference for the investors for them to make their financial decision or for the scholars for their researches.
Keywords
Gordon growth model., Dividend Discount Model, review, Limitations, Advantages
[1]. Williams, J.B.: The theory of investment value. No. HG4521 W48. (1938).
[2]. Ma, Q., Yu, J.: Dividend discount model and case analysis. Journal of Yunnan Institute of Finance and Trade (06), 108-109 (2003).
[3]. Bouzouita, Raja, Anil Poudyal, and Arthur J. Young.: Gordon Growth Model with Constant Growth Elasticity of Asset Prices.
[4]. Duncan, Jerome, et al.: The Gordon Growth Model: A Teaching Case. Journal of Business Case Studies (JBCS) 13(1), 23-32 (2017).
[5]. Hurley, William J., and Lewis D. Johnson.: A realistic dividend valuation model. Financial Analysts Journal 50(4), 50-54 (1994).
[6]. Farrell Jr, James L.: The dividend discount model: A primer." Financial Analysts Journal 41(6), 16-25 (1985).
[7]. Malkiel, Burton G.: Equity yields, growth, and the structure of share prices. The American Economic Review 53(5), 1004-1031 (1963).
[8]. Molodovsky, Nicholas, Catherine May, and Sherman Chottiner.: Common stock valuation: Principles, tables and application. Financial Analysts Journal 21(2), 104-123 (1965).
[9]. Fuller, Russell J., and Chi-Cheng Hsia.: A simplified common stock valuation model. Financial Analysts Journal 40(5), 49-56 (1984).
[10]. Hurley, William J., and Lewis D. Johnson.: A realistic dividend valuation model. Financial Analysts Journal 50(4), 50-54 (1994).
[11]. Yao, Y.F. (1997). A trinomial dividend valuation model. The Journal of Portfolio Management, 23(4), 99–103 (1997).
Cite this article
Ma,L.;Xie,Z.;Zhang,H. (2023). An Evaluation of the Dividend Discount Model and its Extensions. Advances in Economics, Management and Political Sciences,4,165-173.
Data availability
The datasets used and/or analyzed during the current study will be available from the authors upon reasonable request.
Disclaimer/Publisher's Note
The statements, opinions and data contained in all publications are solely those of the individual author(s) and contributor(s) and not of EWA Publishing and/or the editor(s). EWA Publishing and/or the editor(s) disclaim responsibility for any injury to people or property resulting from any ideas, methods, instructions or products referred to in the content.
About volume
Volume title: Proceedings of the 6th International Conference on Economic Management and Green Development (ICEMGD 2022), Part Ⅱ
© 2024 by the author(s). Licensee EWA Publishing, Oxford, UK. This article is an open access article distributed under the terms and
conditions of the Creative Commons Attribution (CC BY) license. Authors who
publish this series agree to the following terms:
1. Authors retain copyright and grant the series right of first publication with the work simultaneously licensed under a Creative Commons
Attribution License that allows others to share the work with an acknowledgment of the work's authorship and initial publication in this
series.
2. Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the series's published
version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgment of its initial
publication in this series.
3. Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) prior to and
during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work (See
Open access policy for details).