THE USE OF THE DIVIDEND DISCOUNT MODEL TO MEASURE STOCK PRICE VOLATILITY

The dividend discount model, shortly characterized at the beginning of thepaper, belong among many models used to stock valuation. Various situationsassociated with zero, constant or variable dividend growth rate are described,including case of zero-dividend firm. The aim of the paper is to present the way howto use the dividend discount model to measure stock price volatility. Many subjects onfinancial market whether they generally analyse concrete stock markets or theydirectly create investment recommendations, can use this option in the practice.Findings resulting from realized empirical analysis can be rather beneficial for thesesubjects. Author also presents other ways how to use this model in the practice. It isalso possible to compare the volatility and return related to one state with the sameparameters related to other state, as it is mentioned in concrete examples.