Working Paper: NBER ID: w20199
Authors: David Le Bris; William N. Goetzmann; Sébastien Pouget
Abstract: We use the Bazacle company of Toulouse's unique historical experience as a laboratory to test asset pricing theory. The Bazacle company is the earliest documented shareholding corporation. Founded in 1372 and nationalized in 1946, it was a grain milling firm for most of its 600 year history. We collect share prices and dividends over its entire lifespan. The average dividend yield in real terms was slightly in excess of is 5% per annum, while the long-term price growth was near zero. \n\nThe company's unique full-payout dividend policy allows us to estimate an asset pricing model with fundamentally persistent dividends and a time-varying risk correction. The model is not rejected by the data. Variations in expected future dividends are found to explain between one-sixth and one-third of variations in prices. Moreover, the risk correction is correlated with macroeconomic shocks, in particular with the volatility of grain prices.
Keywords: asset pricing; historical stock returns; dividends; Bazacle company
JEL Codes: G12; N13; N23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| variations in expected future dividends (G35) | stock prices (G12) |
| increased volatility in grain prices (Q11) | higher risk correction in share prices (G12) |
| dividend shocks (G35) | stock prices (G12) |
| stock prices (G12) | dividends (G35) |