38 Pages Posted: 12 Feb 2010 Last revised: 15 Sep 2013
Date Written: October 7, 2011
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.
Keywords: Equity Risk Premium, Pricing Dividends, Trading Dividends, Return Predictability
Suggested Citation: Suggested Citation
van Binsbergen, Jules H. and Brandt, Michael W. and Koijen, Ralph S. J., On the Timing and Pricing of Dividends (October 7, 2011). CRSP Working Paper; Chicago Booth Research Paper No. 10-30; Swiss Finance Institute Research Paper No. 11-13. Available at SSRN: https://ssrn.com/abstract=1551654 or http://dx.doi.org/10.2139/ssrn.1551654
By Andrew Ang