Stone's Conjecture on Fair-Return Processes: Comments and Correction

Issue: Autumn 1977

Pages: pp. 601-604

Authors: Prem Prakash

Title: Stone's Conjecture on Fair-Return Processes: Comments and Correction

Abstract: Taking a discounted-dividend stock valuation model in which the appropriate fair-return for any future period is itself a random variable, Stone (1975) arrives at a necessary and sufficient condition for the stock values to conform to a fair-return process. The present paper shows that Stone's claim is incorrect. However, the postulated stock values do constitute a fair-return process if the appropriate fair returns for all periods are nonrandom as in Samuelson (1973) or if the expected values of future dividends are constants under the stochastic process -- a case of little interest.

Capital Markets: Theory, Including Portfolio Selection, and Empirical Studies Illustrating Theory (3131)

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