Discuss whether the following statement is true or false:
The use of a dividend-discount model to value common stocks is inconsistent with strong-form efficiency but is consistent with weak-form efficiency.

Question

Quizplus · Accepted Answer

The dividend-discount model calculates the value of a stock by discounting the future expected dividends to their present value.Strong form of market efficiency all the possible information whether public or private is reflected in the stock price.Future dividends are no exception.Therefore,dividend discount model is consistent with the strong form of efficiency of the market.Weak form of efficiency states that all historical information is reflected in the prices.Since dividend discount model assumes future dividends as inputs,it is inconsistent with weak form of efficiency.

Discuss Whether the Following Statement Is True or False