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The Power Law and Dividend Yields

ZEW Discussion Paper No. 04-51 // 2004
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ZEW Discussion Paper No. 04-51 // 2004

The Power Law and Dividend Yields

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Recent research suggests that the power law is one of the most universal laws in nature and it also seems to work quite fine in economics and finance. In this paper we show that the power law explains extremely well the relationship between the value of broad-based market indices and their dividends. We also show that this relationship is consistent with declining relative risk aversion of the representative investor. Hence, the power law has a solid economic foundation.

Lüders, Erik, Inge Lüders-Amann and Michael Schröder (2004), The Power Law and Dividend Yields, ZEW Discussion Paper No. 04-51, Mannheim.

Authors Erik Lüders // Inge Lüders-Amann // Michael Schröder