Holding Period Effects in Dividend Strip Returns

48 Pages Posted: 12 Mar 2022 Last revised: 9 Jun 2022

See all articles by Benjamin Golez

Benjamin Golez

University of Notre Dame

Jens Carsten Jackwerth

University of Konstanz - Department of Economics

Date Written: June 9, 2022

Abstract

We estimate short-duration dividend strip prices from 25 years-worth of S&P 500 index option data (1996-2020). We show that short-duration strips offer substantially more attractive returns than does the market, but the measurement error obscures this result at monthly holding periods. For holding periods longer than one year, where the effect of the measurement error dissipates, the strip Sharpe ratio is two to four times the market Sharpe ratio. This outperformance holds in different subperiods, as well as conditionally on recessions or expansions. We also document that the return on the strip in excess of the market is highly predictable.

Keywords: Dividend term structure, dividend strips, option pricing, interest rate invariant

JEL Classification: G12, G13, G35

Suggested Citation

Golez, Benjamin and Jackwerth, Jens Carsten, Holding Period Effects in Dividend Strip Returns (June 9, 2022). Available at SSRN: https://ssrn.com/abstract=4015723 or http://dx.doi.org/10.2139/ssrn.4015723

Benjamin Golez

University of Notre Dame ( email )

256 Mendoza College of Business
Notre Dame, IN 46556-5646
United States
(574) 631-1458 (Phone)

HOME PAGE: http://business.nd.edu/BenGolez/

Jens Carsten Jackwerth (Contact Author)

University of Konstanz - Department of Economics ( email )

Universitaetsstr. 10
Konstanz, 78457
Germany
+497531882196 (Phone)
+497531883120 (Fax)

HOME PAGE: http://cms.uni-konstanz.de/wiwi/jackwerth/

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