On the Timing and Pricing of Dividends
Jules H. Van Binsbergen
University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)
Michael W. Brandt
Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)
Ralph S. J. Koijen
London Business School - Department of Finance; Centre for Economic Policy Research (CEPR)
March 31, 2011
MFI Working Paper No. 210-010
We recover prices of dividend strips on the aggregate stock market using data from derivatives markets. The price of a k-year dividend strip is the present value of the dividend paid in k years. The value of the stock market is the sum of all dividend strip prices across maturities. We study the properties of strips and find that expected returns, Sharpe ratios, and volatilities on short-term strips are higher than on the aggregate stock market, while their CAPM betas are well below one. Short-term strip prices are more volatile than their realizations, leading to excess volatility and return predictability.
Number of Pages in PDF File: 49
Keywords: Equity risk premium, dividend strips, excess volatility
JEL Classification: E3, G1
Date posted: November 17, 2010 ; Last revised: September 15, 2013
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