Reaching for Dividends

43 Pages Posted: 24 Oct 2015 Last revised: 9 Aug 2019

See all articles by Hao Jiang

Hao Jiang

Michigan State University

Zheng Sun

University of California, Irvine - Paul Merage School of Business

Date Written: July 30, 2019


Interest rates dived into uncharted territories for an extended period after the financial crisis. What is the impact on investor behavior and asset prices? We find that when interest rates fall, flows into income-oriented equity funds increase, with higher dividend-yielding funds attracting more inflows after controlling for fund returns. Responding to their incentives, income fund managers tend to aggressively over-weight high dividend stocks in a low-rate environment. This behavior of “reaching for dividends” generates market impact: high dividend stocks tend to have higher prices when interest rates fall, and lower excess returns when interest rates subsequently normalize.

Keywords: Low Interest Rates, Monetary Policy, Dividends, Income Funds, Flows

JEL Classification: E40; E50; G10; G20

Suggested Citation

Jiang, Hao and Sun, Zheng, Reaching for Dividends (July 30, 2019). Journal of Monetary Economics, Forthcoming, Available at SSRN: or

Hao Jiang (Contact Author)

Michigan State University ( email )

315 Eppley Center
Department of Finance
East Lansing, MI 48824
United States


Zheng Sun

University of California, Irvine - Paul Merage School of Business ( email )

Paul Merage School of Business
Irvine, CA California 92697-3125
United States

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