Excess volatility and stochastic approach of interest rates in stock market

The motivation for studying volatility in stock prices is to find out "what ultimately, is behind day to day movements in prices? The experience found evidence that stock prices appeared to be more volatile than fundamentals (i.e., dividends) could explain. In this study we will go through the debate on excess volatility of stock prices and analyze the econometric aspects of the techniques used in the literature. This paper also will examine, firstly formulation of accumulated values and present values with fixed interest rate and secondly formulation with stochastic approach, latter the result is compared.