On the Timing and Pricing of Dividends: Reply

14 Pages Posted: 1 Jun 2016 Last revised: 4 Jun 2016

See all articles by Jules H. van Binsbergen

Jules H. van Binsbergen

University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)

Ralph S. J. Koijen

University of Chicago - Booth School of Business; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Date Written: June 3, 2016

Abstract

Schulz (2016) replicates the findings of Binsbergen, Brandt, and Koijen (2012) (BBK hereafter) and agrees that the average pre-tax returns on short-term dividend strips are higher than those of the index, but argues that the after-tax returns are not. He thus provides a possible economic interpretation of the results in BBK: taxes. Schulz (2016) estimates the differential tax rates of dividends versus capital gains from ex-dividend day returns. We show that these estimated tax rates are suspect and imprecisely measured, peaking at over 100% in some periods. The results in BBK are robust to using tax rates from the literature (Sialm (2009)). The arguments in Schulz (2016) thus crucially depend on implausibly large tax estimates. We further discuss two other financial market imperfections discussed in the literature and show that they are also unlikely to explain the results in BBK.

Keywords: Term structure of equity, dividend strips, dividend futures, taxes

Suggested Citation

van Binsbergen, Jules H. and Koijen, Ralph S. J., On the Timing and Pricing of Dividends: Reply (June 3, 2016). Available at SSRN: https://ssrn.com/abstract=2787713 or http://dx.doi.org/10.2139/ssrn.2787713

Jules H. Van Binsbergen

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://www.nber.org/people/jules_vanbinsbergen

Ralph S. J. Koijen (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

HOME PAGE: http://faculty.chicagobooth.edu/ralph.koijen/

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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