Preference for Dividends and Return Comovement
52 Pages Posted: 16 Feb 2015 Last revised: 22 Apr 2018
Date Written: February 12, 2018
Stocks that initiate dividends tend to comove more with other dividend-paying stocks and comove less with non-dividend payers. This is also true for: (a) dividend initiations that are motivated by the exogenous 2003 dividend tax cut; and (b) the cash dividend share class of Citizens Utilities (relative to its stock dividend class). We find that flows to dividend prone (averse) mutual funds increases the comovement among dividend-paying (non-dividend paying) stocks. Overall, the evidence supports the proposition that the trading of pro-dividend (dividend-averse) clienteles induces an extra factor in dividend payers (non-payers), beyond those associated with changes in common factors.
Keywords: Dividend Clientele, Return Comovement, Style Investing
JEL Classification: G12, G35, H20
Suggested Citation: Suggested Citation