The Gordon-Shapiro dividend growth formula and inflation

Article Abstract:

The share valuation model which discounts expected dividends is widely accepted in the finance literature. Beyond some point a constant growth rate in expected dividends is assumed. The accepted specification of this growth rate involves a constant retention rate for earnings, and is valid under no inflation. This paper derives the corresponding nominal formula under inflation using a retention rate defined in terms of inflation accounted earnings, and shows that its real counterpart is the accepted formula. It is also shown under inflation that the nominal formula using a retention rate defined in terms of historic cost earnings is considerably more complicated, and that a major error in share valuation results from mistakenly assuming the accepted formula to be valid in nominal terms with a retention rate defined in terms of inflation accounted earnings. (Reprinted by permission of the publisher.)

Evaluation, Stocks, Dividends, Gordon, M.J., Shapiro, E.

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The accuracy of CAPM proxies for estimating a firm's cost of equity

Article Abstract:

In estimating a firm's cost of equity with the CAPM the standard procedure is to proxy the market portfolio by a share index. Since this index is not the market portfolio this may give rise to a bias in estimating the firm's cost of equity. This paper investigates this bias and concludes that it will arise if the factor coefficients are not proportional to those of the index. Even moderate departures from this proportionality condition may produce significant bias. (Reprinted by permission of the publisher.)

Securities, Capital assets pricing model, Capital asset pricing model

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Ground rental rates and ratchet clauses

Article Abstract:

A study examining the effect of a ratchet clause on the rental rate for a ground lease in situations where land value is periodically assessed, is presented.

United States, Legal issues & crime, Government regulation (cont), Government regulation, Legal/Government Regulation, Laws, regulations and rules, Real property, Real estate appraisal, Rents (Property), Building leases

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