Juicing the Dividend Yield: Mutual Funds and the Demand for Dividends

49 Pages Posted: 17 Oct 2014

See all articles by Lawrence Harris

Lawrence Harris

University of Southern California - Marshall School of Business - Finance and Business Economics Department; Institute for Quantitative Research in Finance (the Q-Group); Interactive Brokers, Inc. (IBKR); University of Pennsylvania - Financial Economists Roundtable

Samuel M. Hartzmark

University of Chicago - Booth School of Business

David H. Solomon

Boston College - Carroll School of Management

Date Written: October 15, 2014

Abstract

Some mutual funds purchase stocks before dividend payments to artificially increase their dividends, which we call "juicing." Funds paid more than twice the dividends implied by their holdings in 7.4% of fund-years examined. Juicing is associated with larger inflows, and is more common among funds with unsophisticated investors. This behavior is consistent with an underlying investor demand for dividends, but is hard to explain by taxes or need for income, as funds can generate equivalent tax-free distributions by returning capital. Juicing is costly to investors through higher turnover and increased taxes of 0.57% to 1.52% of fund assets per year.

Keywords: Dividends, Mutual Funds, Behavioral Finance, Payout Policy, Catering, Dividend Clienteles

JEL Classification: G02, G11, G35, G38

Suggested Citation

Harris, Lawrence and Hartzmark, Samuel M. and Solomon, David H., Juicing the Dividend Yield: Mutual Funds and the Demand for Dividends (October 15, 2014). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=2510484

Lawrence Harris

University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )

Marshall School of Business
Los Angeles, CA 90089
United States
213-740-6496 (Phone)
213-740-6650 (Fax)

Institute for Quantitative Research in Finance (the Q-Group) ( email )

Q Group
P.O. Box 1540
Valley Stream, NY 11582
United States

Interactive Brokers, Inc. (IBKR) ( email )

209 South LaSalle Street
10th Floor
Chicago, IL 60604
United States

University of Pennsylvania - Financial Economists Roundtable ( email )

Philadelphia, PA
United States

Samuel M. Hartzmark

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

David H. Solomon (Contact Author)

Boston College - Carroll School of Management ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

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