Hostname: page-component-78c5997874-v9fdk Total loading time: 0 Render date: 2024-11-10T19:50:13.342Z Has data issue: false hasContentIssue false
  • English
  • Français

Yet more on a stochastic economic model: Part 4: a model for share earnings, dividends, and prices

Published online by Cambridge University Press:  19 June 2017

A. D. Wilkie  and
Şule Şahin
A. D. Wilkie*
Affiliation:
InQA Limited, Dennington, Ridgeway, Horsell, Woking GU21 4QR, UK
Şule Şahin
Affiliation:
Department of Actuarial Sciences, Hacettepe University, Ankara 06800, Turkey
*
*Correspondence to: A. D. Wilkie, InQA Limited, Dennington, Ridgeway, Horsell, Woking GU21 4QR, UK. Tel: +44 1483 725984 or +44 1483 744826; E-mail: david.wilkie@inqa.com
Get access Rights & Permissions [Opens in a new window]

Abstract

In this paper, we develop an extension to the Wilkie model, introducing share earnings and cover (earnings/dividends) as new variables, and deriving share dividends from them. Earnings are available from April 1962, but only for the Non-Financial index, and for the All-Share one only from 1992. We construct a Composite Earnings Index from these series. We then find a suitable annual time series model for changes in earnings, and then for cover, which is mean-reverting. We compare this new model with the original model, in which changes in dividends were modelled directly. We also investigate monthly data to give parameters for stochastic interpolation. We observe an unusual change in earnings over 2015–2016, consider the implications of this and show specimen simulations.

Keywords

Wilkie modelShare earningsShare dividendsP/E ratioCover
Type
Papers
Information
Annals of Actuarial Science , Volume 12 , Issue 1 , March 2018 , pp. 67 - 105
Copyright
© Institute and Faculty of Actuaries 2017 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Little, I.M.D. (1962). Higgledy piggledy growth. Bulletin of the Oxford University Institute of Economics and Statistics, 24(4), 387–412.CrossRefGoogle Scholar
Little, I.M.D. & Rayner, A.C. (1966). Higgledy Piggledy Growth Again. Basil Blackwell, Oxford.Google Scholar
Wilkie, A.D. (1986). A stochastic investment model for actuarial use. Transactions of the Faculty of Actuaries, 39, 341–381.CrossRefGoogle Scholar
Wilkie, A.D. (1995). More on a stochastic asset model for actuarial use. British Actuarial Journal, 1, 777–964.CrossRefGoogle Scholar
Wilkie, A.D. & Şahin, Ş. (2016). Yet more on a stochastic economic model: Part 2: initial conditions, select periods and neutralising parameters. Annals of Actuarial Science, 10, 1–51.CrossRefGoogle Scholar
Wilkie, A.D. & Şahin, Ş. (2017 a). Yet more on a stochastic economic model: Part 3A: stochastic interpolation: Brownian and Ornstein-Uhlenbeck bridges. Annals of Actuarial Science, 11, 74–99.CrossRefGoogle Scholar
Wilkie, A.D. & Şahin, Ş. (2017 b). Yet more on a stochastic economic model: Part 3B: stochastic bridging for retail prices and wages. Annals of Actuarial Science, 11, 100–127.CrossRefGoogle Scholar
Wilkie, A.D. & Şahin, Ş. (2017 c). Yet more on a stochastic economic model: Part 3C: stochastic bridging for share yields and dividends and interest rates. Annals of Actuarial Science, 11, 128–163.CrossRefGoogle Scholar
Wilkie, A.D., Şahin, Ş., Cairns, A.J.G. & Kleinow, T. (2011). Yet more on a stochastic economic model: Part 1: updating and refitting, 1995 to 2009. Annals of Actuarial Science, 5, 53–99.CrossRefGoogle Scholar