Holding Period Effects in Dividend Strip Returns

52 Pages Posted: 12 Mar 2022 Last revised: 28 Nov 2023

See all articles by Benjamin Golez

Benjamin Golez

University of Notre Dame

Jens Carsten Jackwerth

University of Konstanz - Department of Economics

Date Written: November 23, 2023

Abstract

We estimate short-term dividend strip prices from 27 years of S&P 500 index options data (1996-2022). We use option-implied interest rates when estimating strip prices and longer holding period returns to mitigate measurement error. We find that Sharpe ratios for short-term strips are similar to or higher than Sharpe ratios for the market. Short-term strips also have a low market beta and a positive alpha. Over the business cycle, realized term premia (i.e., the difference between market and strip returns) and the term structure of Sharpe ratios move countercyclically, whereas the term structure of alphas moves procyclically.

Keywords: Dividend term structure, dividend strips, option pricing, option-implied interest rates

JEL Classification: G12, G13, G35

Suggested Citation

Golez, Benjamin and Jackwerth, Jens Carsten, Holding Period Effects in Dividend Strip Returns (November 23, 2023). 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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