They resorted to substituting future dividends
- the outcome of capital accumulation and re-investment - for present
ones. The myth was born.
Thus, financial market theories starkly contrast with market realities.
No one buys shares because he expects to collect an uninterrupted and
equiponderant stream of future income in the form of dividends.
Even the most gullible novice knows that dividends are a mere apologue,
a relic of the past. So why do investors buy shares? Because they hope
to sell them to other investors later at a higher price.
While past investors looked to dividends to realize income from their
shareholdings - present investors are more into capital gains. The
market price of a share reflects its discounted expected capital gains,
the discount rate being its volatility. It has little to do with its
discounted future stream of dividends, as current financial theories
teach us.
But, if so, why the volatility in share prices, i.e., why are share
prices distributed? Surely, since, in liquid markets, there are always
buyers - the price should stabilize around an equilibrium point.
It would seem that share prices incorporate expectations regarding the
availability of willing and able buyers, i.
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