Reaching for Dividends

66 Pages Posted: 24 Oct 2015 Last revised: 5 Aug 2017

Hao Jiang

Michigan State University

Zheng Sun

University of California - Irvine - Paul Merage School of Business

Date Written: July 2017


We show that stocks with higher dividends tend to have longer duration, experiencing greater price increases when interest rates decline. Evaluating candidate explanations, we find evidence supporting a hypothesis of investors "reaching for dividends." Specifically, when interest rates fall, households increase their asset allocations from bonds to stocks; flows into income-oriented equity funds also increase, with higher dividend-yielding funds attracting more in flows. Responding to their incentives, income fund managers more aggressively over-weight high dividend stocks in a low-rate environment. The resulting higher demand appears to impact stock prices and returns: Lower interest rates forecast lower excess returns on high dividend stocks.

Keywords: Equity Duration, Interest Rate Risk, Dividends, Income Funds, Flows, Institutional Investors

JEL Classification: G10, G11, G12, G23

Suggested Citation

Jiang, Hao and Sun, Zheng, Reaching for Dividends (July 2017). 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 )

Irvine, CA California 92697-3125
United States

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