Stock Market and No-Dividend Stocks

51 Pages Posted: 16 Feb 2018 Last revised: 10 Feb 2020

See all articles by Adem Atmaz

Adem Atmaz

Purdue University - Krannert School of Management

Suleyman Basak

London Business School; Centre for Economic Policy Research (CEPR)

Date Written: February 2020


We develop a model of the aggregate stock market featuring both dividend-paying and no-dividend stocks within a familiar, parsimonious consumption-based equilibrium framework. We find that such a simple feature leads to profound qualitative implications that support several empirical regularities on the stock market which leading consumption-based asset pricing models have difficulty in reconciling. We show that the presence of no-dividend stocks in the stock market leads to a lower correlation between the stock market return and aggregate consumption growth rate, a non-monotonic and even a negative relation between the stock market risk premium and its volatility, and a downward sloping term structure of equity risk premia. We also find that no-dividend stocks command lower mean returns, but have higher return volatilities and higher market betas than comparable dividend-paying stocks, consistently with empirical evidence. We provide straightforward intuition for all these results and the underlying economic mechanisms at play.

Keywords: Stock market, no-dividend stocks, dynamic asset pricing, incomplete information, stock market correlation with consumption, market risk premium-volatility relation, term structure of equity premia

JEL Classification: G12

Suggested Citation

Atmaz, Adem and Basak, Suleyman, Stock Market and No-Dividend Stocks (February 2020). Available at SSRN: or

Adem Atmaz (Contact Author)

Purdue University - Krannert School of Management ( email )

403 West State Street
West Lafayette, IN 47907
United States


Suleyman Basak

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom
44 (0)20 7000 8256 (Phone)
44 (0)20 7000 8201 (Fax)


Centre for Economic Policy Research (CEPR)

United Kingdom

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